In the Name of God, The Compassionate, The Merciful CONTENTS
CHAPTER ONE (INTRODUCTION TO THE CHAPTER TWO (THE BANK’S BANK) PERFORMANCE IN FISCAL YEAR 2018-19)
MESSAGE OF BOARD OF DIRECTORS 6 THE ECONOMY OF IRAN IN 2018-19 20 MEMBERS OF BOARD OF DIRECTORS 7 TEJARAT BANK’S MAJOR ACHIEVEMENTS IN 22 HISTORY OF THE BANK 8 2018-19 CAPITAL AND COMPOSITION OF SHAREHOLDERS 9 A SELECTION OF THE FINANCIAL INFORMATION 22 MISSION, VISION, VALUES AND BELIEFS OF THE 11 INTERNAL AUDIT AND ENHANCING THE BANK’S 23 BANK INTERNAL CONTROL SYSTEM ORGANIZATIONAL CHART 12 IMPLEMENTATION OF TRANSPARENCY 25 BANK’S MANAGEMENT BASED ON THE 14 STANDARDS PRINCIPLES OF CORPORATE GOVERNANCE REPORT ON THE BANK’S RISK ANALYSIS 25 TEJARAT BANK’S BRANCHES NETWORK 15 INFORMATION SECURITY UNIT 29 COMPOSITION OF HUMAN CAPITAL 16 ENFORCEMENT OF THE COMPLIANCE 30 INTRODUCTION TO THE SUBSIDIARIES OF THE 17 STANDARDS BANK ANTI-MONEY LAUNDERING AND COMBATTING 31 THE FINANCING OF TERRORISM (AML/CFT) THE BANK’S SERVICES FOR SOCIAL 32 RESPONSIBILITIES THE BANK’S SERVICES AND PRODUCTS 32 INTERNATIONAL ACTIVITIES 35 HUMAN CAPITALS TRAINING AND DEVELOPMENT 35 OPTIMIZATION OF THE BRANCHES NETWORK 35 MAJOR PLANS AND MEASURES IN THE BANK’S OTHER FIELDS 36 CHAPTER THREE (FUTURE GOALS & PLANS OF THE BANK)
THE BANK’S PIVOTAL OBJECTIVES 38 THE BANK’S MAJOR STRATEGIES 38 THE MAJOR PLANS FOR THE FOLLOWING YEAR 39
CHAPTER FOUR (GENERALITIES OF THE BANK FINANCIAL PERFORMANCE)
THE BANK’S POSITION IN THE BANKING 42 INDUSTRY ANALYSIS OF THE MAJOR VARIABLES’ TREND 42 THE MAJOR FINANCIAL INDICATORS AND RATIOS 48 TREND OF STOCK PRICE 50 SUMMARY OF PERFORMANCE OF OTHER RATIOS 50
CHAPTER FIVE (FINANCIAL STATEMENTS)
FINANCIAL STATEMENTS 52
CHAPTER ONE INTRODUCTION TO THE BANK Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 6
MESSAGE OF BOARD OF DIRECTORS
Thanks the Lord for giving us again this success that with all efforts, assistance and collaboration of all the valuable employees of Tejarat Bank, we successfully passed through one more year and enhanced Tejarat Bank’s prideful history. During the preceding year, our homeland and its banking system faced with difficult conditions resulting from political and economic events as well as the fluctuations in various markets. Achieving the goals and implementing the Bank’s plans in such circumstances surely might not be reached without rigorous plans and their continuous monitoring as well as monitoring the country’s economic and political conditions. Accordingly in the past year; creating a think tank, forming workgroups for increasing commission fee revenues, improving the quality of credit assets, reducing the cost of money, foreign currency affairs, estates and investments, and flexible micro facilities, aiming at amelioration of balance sheet status and increasing the Bank’s profitability, were put on the Bank’s agenda, whose effect in the previous year can be seen as elimination of unnecessary branches, decreased costs of resources absorption, sales of excess and possessory properties, conversion of the Bank’s operational loss into operational profit, rendering various new services and completion of the processes for transition to comprehensive banking.
Moreover, in the fiscal year 2018-19*, thanks to the admirable company of the esteemed shareholders, we increased the Bank’s capital by 390% successfully sourced from assets revaluation and took a long step in exiting the Bank from the scope of Article 141 of the Amendment of Commerce Code, and drove the Bank to the position of the largest company in Tehran Stock Exchange and so we have given a worthy response to the shareholders trust.
Implementing the devised plans along with our coworkers’ unaffected efforts during the fiscal year 2018-19, finally drove Tejarat Bank closer to its goal for gradual surpassing the loss trend. Achieving this goal is undoubtedly the Bank’s first step for attracting satisfaction of the shareholders and stakeholders and protecting their interests. Applying the staff’s unique experience and formulating operational and strategic plans like the previous years, Tejarat Bank will do its best to satisfy all beneficiaries of the Bank. It is worth mentioning that continuation of improving the resources portfolio with the aim of reducing the cost of money, augmentation of the return on facilities and trying to curb the growth of claims, increase of commission revenues, the sales of non-instrumental investments, and agility are among the main objectives for the fiscal year 2019-20.
* A fiscal year in Iran begins from the first day of spring and ends to the last day of winter, that is to say, from 20th or 21st of March of a year to 19th or 20th of the next year. TEJARAT BANK 7
MEMBERS OF BOARD OF DIRECTORS
Mr. AMIRMASOUD RAZAZAN Mr. ALIREZA HAJALI Vice-Chairman of Board of Chairman of the Board of Directors Directors
Mr. ABBAS Mr. ALI KEYLANI ASHRAFNEJAD Board Member Board Member
Mr. REZA DOLATABADI Managing Director (CEO) & Board Member Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 8
1. HISTORY OF THE BANK
Before the victory of the Islamic Revolution of Iran; 36 banks were active in Iran; some owned by the Government and some were private, owned wholly by Iranians or jointly by Iranians and foreigners. After the victory of the Islamic Revolution; on June 7, 1979, the Revolution Council nationalized all country’s banks merging some of them with each other. By virtue of the Legal Bill on Administrating Banks’ Affairs approved on Oct. 17, 1979, Tejarat Bank was constituted from merger of 11 private domestic banks and domestic-foreign joint banks with its capital amounting to IRR 39 billion; and it was registered with the Company Registration Office on July 19, 1980.
After proclamation of the Law Amending Some Articles of the Fourth Economic, Social and Cultural Development Plan and in execution of the general policies of Article 44 of the Constitutional Law of Islamic Republic of Iran; Tejarat Bank was included among the companies to be assigned; and then on May 18, 2009 for the first time, its stock was listed on Tehran Stock Exchange (T.S.E.). Thanks to using the relative advantage of “expert human forces” and the advanced banking methods originating from the experiences of the integrated banks, Tejarat Bank has had the privilege of choosing and using the best banking systems and methods since its foundation. Benefitting from state-of-the-art software and hardware systems, having extensive international communications and specialized banking knowledge caused the Bank to The New East Bank was the first be known as a major prestigious bank in Iran for many bank of the modern pattern which years and maintain its superiority in some fields such started its activities in 1887 at the as letter of credits (LCs) and letter of guarantees (LGs). east side of Imam Khomeini (Toop At present, with its capital amounting to IRR 223,926 Khaneh) Sq. where Tejarat Bank is billion, a staff consisting of 17,043 people, and use of located now. Although the Bank’s modern technologies, Tejarat Bank serves the people and activities did not last more than businesses by rendering services in its 1,478 branches one year and it was replaced with and main branches countrywide. Shahi Bank; this motion instituted the basis for modern banking in It is noteworthy that by March 20, 2019; just 17% of the Iran. Bank’s stock remains in the government’s possession. TEJARAT BANK 9
2. CAPITAL AND COMPOSITION OF SHAREHOLDERS
At its establishment, the Bank’s capital was IRR 39,120 million (consisting of 39,120,000 shares with nominal value of IRR 1,000 per share) which has increased since then seven times as follows to IRR 223,926,127 million (consisting of 223,926,127,000 shares with nominal value of IRR 1,000 per share). Amount Amount of of Capital Capital Fiscal Year New Capital Source of Capital Increase Increase Increase of Capital (IRR (IRR Ratio (%) Increase million) million) Merger of the Banks 39,120 - - 1979-80
Revaluation of Fixed Assets 571,120 532,000 1359.92% 1992-93 From the Special Bonds of Article 93 of 1,231,120 660,000 115.56% 2000-01 the Third Development Plan Act Surplus from revaluation of fixed assets 10,437,384 9,206,264 747.80% 2004-05 From cash, shareholders due receivables 13,568,599 3,131,215 30.00% 2010-11 and retained earnings From retained earnings 17,500,000 3,931,401 28.97% 2011-12
Surplus from revaluation of fixed assets 45,700,000 28,200,000 161.14% 2014-15
Revaluation of fixed assets & investments 223,926,127 178,226,127 389.99% 2018-19
Trend of Capital Increase during Different Years (IRR million) 223,926,127 45,700,000 13,568,599 17,500,000 10,437,384 571,120 1,231,120 39,120
(1979-80) (1992-93) (2000-01) (2004-05) (2010-11) (2011-12) (2014-15) (2018-19) Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 10 The shareholders owning more than 1% of the Bank’s stock at 2018-19 year-end are as listed in the following table: Year ended Mrch 20, 2019 Row Name of Shareholder Number of Shareholding Shares Portion % One percent and higher: Government of Islamic Republic of Iran (Ministry of Economic 1 38,067,441,564 17.00 Affairs and Finance) 2 Saba Tamin Investment Co. (Public Joint Stock) 17,125,440,925 7.65 Privatization Organization – By representation (personnel’s 3 11,192,200,781 5.00 preference shares) Tejarat Iranian Etemad Market-Making Special Investment Fund 4 11,119,710,882 4.97 (BFM) 5 Tehran Province Investment Co. (Pvt) 9,109,884,794 4.07
6 Khorasan Razavi Province Investment Co. (Pvt) 7,271,501,926 3.25
7 Fars Province Investment Co. (Pvt) 6,166,016,082 2.75
8 Esfahan Province Investment Co. (Pvt) 5,621,790,014 2.51
9 Khoozestan Province Investment Co. (Pvt) 5,503,247,985 2.46
10 East Azerbaijan Province Investment Co. (Pvt) 4,645,170,800 2.07
11 Mehr 78 Support Services Co. Ltd. 4,573,590,693 2.04
12 Mazandaran Province Investment Co. (Pvt) 4,333,697,688 1.94
13 Market Development Joint Investment Co. (Pvt) 4,285,377,531 1.91
14 Kerman Province Investment Co. (Pvt) 4,224,862,737 1.89
15 South Mines Development Co. 3,919,932,200 1.75
16 Iran National Investment Co. (Pvt) 3,911,982,359 1.75
17 Guilan Province Investment Co. (Pvt) 3,909,983,529 1.75
18 West Azerbaijan Province Investment Co. (Pvt) 3,385,956,192 1.51
19 Macro International Services Co. (Pvt) 3,350,161,835 1.50
20 Sistan and Baluchestan Province Investment Co.(Pvt) 3,268,293,245 1.46
21 Kermanshah Province Investment Co. (Pvt) 2,956,165,889 1.32
22 Lorestan Province Investment Co. (Pvt) 2,809,954,975 1.25
23 Iran Health Insurance Organization 2,530,735,695 1.13
24 Golestan Province Investment Co. (Pvt) 2,469,635,454 1.10
25 Hamedan Province Investment Co. (Pvt) 2,346,735,210 1.05
Others (Less than 1%):
Legal persons (317 shareholders) 28,127,589,321 12.56
Real Shareholders (57,991 shareholders) 27,699,066,694 12.37
Total: 223,926,127,000 100 TEJARAT BANK 11 3. MISSION, VISION, VALUES AND BELIEFS OF THE BANK
Mission: Tejarat Bank, as one of the greatest commercial banks in the region, has an effective presence in the domestic, regional and global markets and aims to create value for clients, especially valuable clients, through designing and innovating new services. Its good reputation, skilled human resources and capability to provide banking services especially in the field of commitments allow the Bank – within the framework of the Monetary and Banking Laws and Regulations – to promote its profitability and meet the interests of all stakeholders and play an effective role in the country’s economic growth and banking system advancement.
Vision: To be the first choice of clients in its prospective horizon, Tejarat Bank will be an accountable bank to meet the needs of clients through rendering the newest services at the shortest possible time.
Values: 1) Committed to observance of professional and legal principles; 2) Committed to value creation for all stakeholders; 3) Committed to observance of customer orientation and accountability principles; 4) Committed to collaborative management and organizational learning; 5) Committed to transparency and honesty. Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 12 4. ORGANIZATIONAL CHART
General Assembly
Board of Directors
Services Compensation Committee
Audit Committee
Managing Director
Internal Audit Dept.
Anti-Money Laundering (AML) & Terrorism financing Dept.
Board of Directors' Secretariat Dept.
Deputy of Deputy of Information Deputy of Provinces Deputy of Market Deputy of Affairs & Sales Steering and Business Organization and Supervision Technology Network Development Investment
Information Tejarat Holding Security Unit Investment Dept. & Other Companies affiliated to Bank
Inspection Information Technology Security Affairs Provinces Affairs Organization & Division Affairs Division Division Division Procedures Affairs Division
Domestic Currency Software Personnel Security Organizing & Inspection Dept. Development & Dept. Sales Network Market Planning Banking Regulations Operation Dept. Support & and Development Dept.A Coordination Dept. Dept. Foreign Currency Documents, & Technical Systems and Computer & Data Studies & Planning Inspection Dept. Services Support Security Dept. Branches Services Design Dept. Dept. Divisions & Business Improvement Dept. Remote Monitoring Physical Security Unit Infrastructure and Committees & Safety Services Organizing Unit Modern Services Dept. Corporate Banking Development Dept. Division Legal Affairs Division Contracts and Business Banking Project Control Unit Unit
Claims Dept.
Legal Services Dept. TEJARAT BANK 13
Compliance Committee
Risk Management High Committee
Deputy Director
Risk Management Unit
Compliance Unit
Public Relations and Advertisements Dept.
Deputy of Deputy of Deputy of Credit International Affairs Finance
Fixed Assets & International Affairs Administrative Expertise Group and General Expenditures Management Unit
Credit Affairs International Affairs Financial Affairs Procurement & Human Resources Division Division Division Engineering Division Affairs Division
Gen. Dept. of Network Affairs Branches & Expansion of Engineering & Remuneration Credits Accounting & Properties Dept. Dept. Foreign Currency Statistics Dept. Operations Dept. Collections Follow-Up & Treasury & General Procurement & Planning & Supply of Monitoring Dept. Accounting Dept. Services Dept. Human Resources Foreign Dept. Guarantees Dept. Corporate Banking Management Credits Unit Human Capital Treasury & Banks’ Accounting Dept. Development Dept. Relations Dept. Expertise and Supervision High Modern Services Accounting Dept. Screening Committee Foreign Accounting Board Dept. Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 14 5. BANK’S MANAGEMENT BASED ON THE PRINCIPLES OF CORPORATE GOVERNANCE
Based on the new procedures in the international banking, Organization; “the High Committee which strictly emphasize the observance of the principles for Appointments” was formed in of corporate governance in order to secure the interests of the Bank beside the “Committee for stakeholders through ensuring the proper functioning of all Compensation of Services”. of banking units, risk management and institutionalization of internal control processes, and also in compliance with With regard to the implementation the repeated emphasis of the Central Bank of the Islamic of the risk management system; Republic (CBI) on implementing the corporate governance it should be mentioned that the principles in the Bank; a significant attention has been paid risk management system was to the governance system of Tejarat Bank based on such accomplished in conformity with principles. The principles of corporate governance cover the directive published by the all processes and structures that help the bank to manage CBI (Central Bank of Iran) titled and direct its affairs, with the aim of ensuring its secure “Guidelines for Effective Internal and sound performance besides enhancing the return on Control System in Credit Institutions”. equity. These principles, which are based on a system of Within the framework of the system; accountability and responsibility of members of the Board of in addition to creating the “Risk Directors and the Executive Board, are a set of duties and Management High Committee” and responsibilities that must be taken up by the Bank’s bodies its subcommittees titled the “Credit to ensure accountability and transparency. Risk Management Subcommittee”, “Liquidity Risk Management In order to give a general overview of the structure and areas Subcommittee”, “Operational and of interest in the corporate governance, the actions taken in System Security Risk Management this area may be highlighted as follows: Subcommittee” and “Market Risk Separating the duties of Board of Directors from those of Management Subcommittee”. Executive Board The “Risk Management High Establishing corporate governance committees Committee” detects, examines and Implementing the risk management principles controls various risks facing the Strengthening the internal audit system in the Bank Bank through the above committees. Transparency of financial information These committees act expertly According to the corporate governance principles and the under the supervision of the “Risk directives provided by the CBI and in conformity with the Management High Committee” to Bank’s new Articles of Association (the template statute for meet its tasks efficiently and manage private commercial banks approved by the Money and Credit various risks. The Bank also formed Council) and also to have a more efficient decision-making the “Risk Management Unit” in line system; the division of duties between the Board of Directors with management of its risks in and the Executive Board was formed in Tejarat Bank. As the past years. Risk Management such the Board of Directors is responsible for deciding on the Unit is responsible for monitoring, Bank’s macro policies and the Executive Board composed of measuring and controlling the most specialist directors are assigned as responsible to execute important risks facing the Bank. the Bank’s approved strategies and plans. In addition, the issue of internal It is obvious that based on the “Directive on Corporate control in Tejarat Bank within the Governance in Non-Governmental Credit Institutions” framework of the prepared codes communicated by the CBI, in line with the fulfillment of the and based on the instruction titled Board of Directors’ duties in the area of supervision and control, “Guidelines for an Effective Internal and in compliance with the current requirements and advices; Control System in Credit Institutions” some committees must be formed under the supervision is pursued by establishing an of the Bank’s Board of Directors, so that the stakeholders’ independent department for internal interests can be properly pursued. Such committees include audit, as well as regular sessions “Risk Management High Committee”, “Audit Committee”, of the “Audit Committee”. Internal “Committee for Compensation of Services”, “Committee audit is actually an important part for Management of Assets and Liabilities”, “Committee for of the value creation chain in Strategic Planning” and “Compliance Committee”, which modern organizations that within act in the framework of the specified task descriptions. Also, the framework of the corporate in line with the execution of the requirements of the new governance plays an important role directive on corporate governance of the companies admitted in the sustainable development of in Tehran’s Stock Exchange and Iran Fara Bourse passed on the organization. July 18, 2018 by the Board of Directors of Stock Exchange TEJARAT BANK 15 6. TEJARAT BANK’S BRANCHES NETWORK
One of the major policies of the Bank in recent years has been the optimization of the branches network by reducing extra branches aiming at agility in the Bank and reduction of costs incurred by the unnecessary branches; so in 2018-19, in continuing the implementation of the “Optimization Program of Branches Network by Reducing the Unnecessary and Economically Unjustified Branches”, the number of the Bank’s domestic currency branches reduced to 1,438 from 1,610. Meanwhile, the plan for reducing the number of branches by 100 in 2019-20 is underway. Domestic Domestic Domestic Foreign Foreign & Foreign Overseas Description Currency Currency Currency Currency Currency Branches Branches Counters Units Counters Branches Regions of Tehran 267 72 9 14 4 - Regions of other 1147 329 --- 25 3 - Cities 2018-19 Free Trade Zones 15 10 --- 1 -- -
Total 1429 411 9 40 7 2
Regions of Tehran 305 79 8 14 3 - Regions of other 1279 347 --- 26 2 - Cities 2017-18 Free Trade Zones 18 9 --- 1 -- -
Total 1602 435 8 41 5 2
Overseas Branches Tejarat Bank has two overseas branches in France (Paris) and Tajikistan (Dushanbe) and a representative office in China (Beijing). Also, the Bank is the owner of more than 99% of the shares of T.C Bank (Trade Capital Bank, Belarus) and one of the major shareholders of PIB (Persia International Bank, London) and EIH (Europaeisch-Iranische Handelsbank). Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 16 7. COMPOSITION OF HUMAN CAPITAL
Human resources management scholars believe that leading organizations in the new millennium can be more responsive to the needs of the organization, only through the use of advanced human resource development models and the strategies to develop the staffing capabilities. Accordingly, improving the quality of dynamic and creative human resources has been one of the major strategic goals of Tejarat Bank during the recent years.
Composition of Bank’s Human Resources In Terms of Education, Gender and Place of Service – Fiscal Year 2018-19 Bachelor Degree Associate Degree and and Higher Lower General Description Total Total Total Male Female Male Female
Back Office 2,224 760 2,984 1,254 159 1,413 4,397
Front Office 5,540 1,683 7,223 4,772 639 5,411 12,634
Total 7,764 2,443 10,207 6,026 798 6,824 17,031
Portion 46% 14% 60% 35% 5% 40% 100%
Analysis of Human Resources in Terms of Work Experience (%)
8%
% 44% 48
Under 10 years 10 to 20 years Over 20 years TEJARAT BANK 17 8. INTRODUCTION TO THE SUBSIDIARIES OF THE BANK
In order to complete its value chain, Tejarat Bank has established companies or invested in its subsidiaries that are listed in the following table. These companies in fact play an important role, directly or indirectly, in providing services to the Bank and its clients.
Last Tejarat Establishment Registered Bank’s Company Name Year Capital Ownership Scope of Business (IRR million) Percentage
Study, design, consultation, technology transmission, installation and commissioning, 2012-13 100,000 65% directly repair and maintenance, building and support in the Simorgh Tejarat and indirectly field of non-media and non-educational computer Total Systems Co. equipment, hardware and software systems in the www.stts.ir field of IT
Trading foreign currencies and gold coins minted by the CBI Conducting the operations related to bills of 100% directly 2009-10 50,000 exchange through the domestic authorized banks Tejarat Exchange and indirectly and non-bank credit institutions Co. Rendering foreign exchange services abroad http://tejarat- through correspondents within the framework of exchange.com the national regulations on foreign exchange. Subscription, undertaking subscription, undertaking purchase of securities in secondary supplies at the limit of its affordability or through 50% directly the formation of syndicates or other similar bodies Kardan 2013-14 2,000,000 and indirectly Sub-activities including rendering services Investment Bank and consultation in the fields related to the main Co. businesses and providing services of brokerage, www.kardan.ir dealing, portfolio and assets management, and investment funds management, etc.
Brokerage services, brokerage/dealing and market management on securities and 100% directly commodities. 1993-94 180,000 and indirectly Financial and consultation services on Tejarat Bank investment funds management, marketing, Brokerage Co. portfolio management, pricing, designing, and www.bt-broker. trading securities, etc. com
Developing and managing extensive payment service networks for payments to the banking 51.8% directly system, insurance companies, and capital market. 2003-04 2,000,000 and indirectly Marketing and installation and support for Kish Iran Credit POS machines of various banks nationwide and Card Co. rendering e-payment services for acceptors of www.kiccc.com bank cards. procurement, purchase, sale, import and export, commissioning, maintenance and support of all kinds of hardware, software and electronic, electrical, computer and mechanical equipment used in all kinds of office, commercial, production, financial, banking, stock exchange businesses, etc. Services of study, research, management, expertise, consultation, design, executive and regulatory implementation in any affairs related to 100% directly the company’s scope of business. Tejarat Iranian 1985-86 30,000 and indirectly Technologic Supply of expert forces required for state- Infrastructure Co. owned and private banks, companies, institutions, (ZAFTA) organizations and natural persons and legal www.zafta.ir entities. Cooperation with specialized natural persons and legal entities in different ways including contracting, service purchase, remuneration and employment, legal participation and formation of a consortium, in order to perform the affairs related to the company’s scope of business. Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 18 Last Tejarat Establishment Registered Bank’s Company Name Year Capital Ownership Scope of Business (IRR million) Percentage Internal and external cleaning services, building decoration and rendering technical, professional and office services to all of the units of the Bank and other institutions. Import of raw materials and machinery related to the company’s scope of business. 1984-85 10,000 100% directly Performing any permissible commercial affairs Tejarat Services and indirectly with regard to the company’s scope of business Co. and performing any services required by the banks http://www.portal. or other institutions. kh/-tejarat.com Investing in other service, commerce and production companies and performing any computer services including hardware and software. Doing all direct insurance operations in various fields of insurance including life insurance, etc. according to the permits issued by the Central Insurance of I.R. Iran. Tejarat Insurance Acquiring reinsurance coverage for issued Co. 2016-17 1,570,000 20% indirectly policies. http:// Investments by using the capital and technical and tejaratinsurance. legal reserves and savings within the framework of com/ the regulations approved by Insurance Supreme Council. Buying any commodity and movable and immovable properties and assigning them to the applicants in the form of a contract of leasing or sale by installments. Sub-activities including trading various securities 1975-76 600,000 43.8% directly in order to manage liquidity within the framework of and indirectly the related rules, regulations and directives. Leasing Iran Co. Granting hire-purchase facilities for various www.leasingiran. kinds of vehicles and mining, industrial road com construction heavy machinery, production and service machinery, and medical, dentistry, devices and equipment, construction, etc.
Investing in stocks, shares, investment units, 2003-04 3,600,000 100% directly Iranian and indirectly funds, or other securities. Investment Co. www.iic.co.ir Investment and establishing and founding production, industrial, agricultural and construction factories and units and administering them. 100% directly Partnership in other companies, procurement of Tejarat Investment 1985-86 3,000,000 and indirectly land, purchase of uncompleted projects, execution & Construction of construction and contractual operations of Co. residential, commercial and office units. www.ticc.ir Consultation, design and supervision over construction operations.
Rendering expert and consultation services on computer, electronics, telecommunications and IT. Tejarat Iranian Mechanization including analysis, production, Electronic 2013-14 300,000 100% implementation and control of software and Communications indirectly hardware systems Development Co. Execution of the Core Banking project in Tejarat (TATA) Bank www.tiddev.vom Administrating the affairs and investing in the shares of the companies operating in the field of IT to boost the advance in the Bank’s missions. Study, design, consultation, technology transfer, installation and operation, maintenance and repair, production, manufacturing and support in the field of telecommunication computer and hardware 2013-14 10 100% directly equipment (both landline and mobile) and software Tejarat Iranian IT and indirectly in the field of IT and telecommunication, including Tadbirgaran Co. virtual technologies, e-business, e-commerce, (TAFTA) e-banking, e-insurance, e-health and the like. www.taftaholding. Business in the field of modern banking software ir including Mobile Bank, Internet Bank, Telephone Bank, and the like. Production, sales and support of software ordered by customer. CHAPTER TWO THE BANK’S PERFORMANCE IN FISCAL YEAR 2018-19 Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 20 1. THE ECONOMY OF IRAN IN 2018-19
1.1. Real Part After experiencing a 3.9% economic added value of the oil and natural gas sector reached IRR growth in 2017-18, with the US’s 1,395 trillion showing a decline of 13.9% compared with the withdrawal from the JCPOA and previous fiscal year. The main reason for the decline in value the return of financial and economic added of the oil sector is the oil sanctions imposed on the sanctions in 2018-19, just like what country in early November, 2018, due to return of sanctions. happened in 2012-13 and 2013-14, the country’s economy is suffering The only sector that did not face a decline in value added at from inflation and recession. Based 2018-19 year-end was the service sector that its value added on the reports of the Statistical amounting to IRR 3,647 trillion shows no change compared Center of Iran; the GDP at the fixed with the previous year. prices of 2011-12 reached IRR 7,130 trillion with petroleum and IRR 5,734 trillion without petroleum at the end 1.2. Financial and Monetary Sector of 2018-19. These figures were IRR In 2018-19 similar to the previous years, the approach of the 7,496 trillion with petroleum and IRR CBI (Central Bank of Iran) as the monetary policymaker 5,874 trillion without petroleum at of the country was focused on the continuation of monetary the end of the previous year which discipline, liquidity growth management, and the policy of indicates a -4.9% growth of GDP directing financial resources towards productive activities. In with petroleum and -2.4% without addition, the bank-centered nature of the financing system petroleum at the end of 2018-9. in the economy of Iran led the CBI to adopt the promotion of discipline and the restructuring of the national banking Percentage of Change (Growth) system as one of its priorities during the said fiscal year. In this of GDP in terms of Economic regard, a special emphasis was made on the transparency in Sectors the financial statements of the banks. Compared to 2017- 2018- Fixed Prices of 18 19 Although the inflation rate was a single-digit number over the 2011-12 early months of 2018-19, but due to the rise in exchange rate Agriculture Group’s in the country’s exchange market, the inflation rate took an Value Added 1 -1.5 ascending trend and came to 26.9% at the end of the year. Industry Group’s Value Added 2 -9.6 Petroleum Group’s 2 -13.9 Value Added Annual Inflation Rate over October 2017 to March 2019 Service Group’s Value Added 6.8 0 Economic Growth (with Petroleum) 3.9 -4.9 26.9 Economic Growth 23.5 (without Petroleum) 4.6 -2.4 20.6 18 Source: Statistical Centre of Iran 15.6 13.4 Based on the fixed prices of 2011- 11.3 8.3 8.7 9.7 12; the agriculture group’s added 7.5 7.8 8 8.2 8.2 8.1 8 8.2 value in 2018-19 is estimated at IRR 439 trillion, showing a decline of 1.5% compared with the previous fiscal year. During the same period, Jul. 2018 Apr. 2018 Apr. Oct. 2018 Oct. 2017 May 2018 Jan. 2019 Jan. 2018 Jun. 2018 Mar. 2019 Mar. Mar. 2018 Mar. Nov. 2018 Nov. Nov. 2017 Nov. Feb. 2019 Feb. 2018 Dec. 2018 Dec. 2017 the value added of the industry Aug. 2018 Sep. 2018 group reached IRR 3,055 trillion, showing 9.6% decline compared with the previous fiscal year. Also the Source: Statistical Centre of Iran TEJARAT BANK 21 The liquidity volume in the country, which had grown by On March 20, 2019, the total 23.2% and 22.1% during the fiscal years 2016-17 and 2017- deposits and facilities balance of 18, respectively, rose to IRR 18,828 trillion on March 20, the banks and credit institutions 2019, showing a 23.1% growth compared to the previous amounted to IRR 20,673 and 15,090 fiscal year. The quasi-money constitutes the main portion trillion, showing growths by 25% and (84.86%) of the liquidity in 2018-19, showing a 2.43% decline 20%, respectively, compared with compared with its portion on the similar date of the previous the same date of the previous year. year (87.29%). Also, the monetary base growing by 24.2% compared with March 20, 2018, came to IRR 2,570 trillion at In the field of credit policies, the March 20, 2019. CBI’s main approach was to focus on providing the production units The readjustment of the deposits and facilities profit rates, with working capital to operate the which was adopted by the CBI in September 2017 to match vacant capacities of the economy the bank profit rates with the inflation rate, caused a decline and to support the SMEs. in the actual profit rates on bank deposits. However, as the inflation rate was a single-digit number in 2017-18, the actual In 2018-19, the total volume of profit rates still remained positive. With the increased inflation facilities paid by the banks to the rate in 2018-19, the actual profit on deposits declined and economic sectors came to IRR reached -11.9%. 7,737.3 trillion showing growth by IRR 1,598.2 trillion (26%) compared Annual Inflation Rate over October 2017 to March 2019 with the previous fiscal year. The 35 share of the facilities paid in the form 26.9 of working capital in all the economic 22 sectors in 2018-19 amounted to 15 15 IRR 4,319.9 trillion, equaling 55.8% 12 6 of the total facilities paid, which 3 shows a growth by IRR 531.1 trillion (equal to 14%) compared with the performance in 2017-18. As it is -18 -11.9 seen in the table below, more than 78.7% (equal to IRR 1,643.3 trillion) of the facilities paid in the industry and mines sector amounting to IRR 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2006-07 2007-08 2008-09 2009-10 2010-11 2,089.3 trillion was paid to provide Actual Profit Rate Inflation Rate Profit Rates on One-Year working capital, which indicates the Deposits priority of financing in this part and the banks’ attention to this priority Source: Statistical Centre of Iran, Central Bank of Islamic Republic during the year under report. of Iran: Report of Consumer Goods and Services Price Index and Regulatory-Policy Packages
Facilities paid in fiscal year 2018-19 separated in terms of economic sectors IRR Trillion / % Housing and Economic Sector Agriculture Industry & Mine Construction Commerce Services Miscellaneous Total Sectors Purpose of Portion Portion Portion Portion Portion Portion Portion Receiving Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
Establishment 132 22.7 150 7.2 486 46.9 41 3.7 314 10.9 0.2 3.3 1125 14.5
Provision of Working Capital 352 60.2 1643 78.7 146 14.1 824 73.2 1348 46.6 5 74.9 4319 55.8
Repair 1.5 0.3 5 0.3 82 8 4 0.4 61 2.1 0.02 0.3 155 2
Development 39 6.8 149 7.1 23 2.3 49 4.4 204 7.1 0.7 9.8 467 6
Purchase of Personal Goods 17 2.9 27 1.3 10 1 60 5.4 477 16.5 0.4 6.6 592 7.7 Purchase of Housing 3 0.5 6.7 0.3 260 25.1 9.5 0.8 43 1.5 0.2 2.8 322 4.2
Other 38 6.6 106 5.1 27 2.6 136 12.2 443 15.3 0.1 2.4 753 9.7
Total 585 100 2089 100 1037 100 1125 100 2892 100 7.4 100 7737 100
Source: Central Bank of Islamic Republic of Iran Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 22 2. TEJARAT BANK’S MAJOR ACHIEVEMENTS IN 2018-19
Becoming the largest company in the Stock Exchange after the country for providing support the capital increase by IRR 223,926 billion sourced from facilities to production and services revaluation of the assets enterprises in the Conference of Exiting from the operational loss and entering into operational National Endurance in Production profit by increasing facilities revenues and reducing costs of and Services deposits Introduced as a Well-known Figure 174% return on Tejarat Bank’s shares in the Stock Exchange of Industry, Mines and Trade in the Reduction of money cost by 2.7% National Congress of Well-known Securing the top rank in (domestic and foreign) LCs and Figures of Industry, Mines and Trade (foreign currency and domestic currency) LG commitments in in 2018 the major commercial banks’ market Receiving a Certificate of Downsizing the number of the Bank’s branches by 221 with Appreciation from the Association of the aim of reducing costs and reinvigorating the organization the Blind and Visually Impaired for and realizing the Bank’s macro objectives Tejarat Bank’s planning, taking action, Acquiring the National Award as the Top Rank in Transparency and special attention and support of and Honesty in rendering banking services in the Conference this appreciable and deserving group of National Production Strategy in various areas of banking Acquiring the Golden Award of National Endurance in the Receiving a Certificate of Economic Development in the 16th Conference of the Heads Appreciation from the Resistance and the Managers of Most Prominent Iranian Companies and Economy Fraction of the Islamic Organizations Consultative Assembly for supporting Acquiring the Golden Award as the Most Profitable and the policies of Resistance Economy Yielding Customer-Oriented Bank in 2018 in the Conference and boosting the small and medium of National Endurance in Production and Services sized enterprises Acquiring the National Award as the Top Rank Bank in
3. A SELECTION OF THE FINANCIAL INFORMATION
Restated Title 2018-19 2017-18 2016-17 A) Info on financial performance during the period (amounts in IRR billion) Operating revenue 65,122 (6,004) 43,316 Non-operating revenue 4,210 2,481 2,479 Net profit (loss) – after deduction of tax (5,521) (60,859) (7,472) Annual adjustments (24,041) (5,793) (11,855) Attorney fees 2,694 0 14,342 B) Info on financial status at the end of the period (amounts in IRR billion) Total deposits 1,420,283 1,108,947 957,126 Total facilities 688,281 547,459 483,177 Total assets 1,942,874 1,345,746 1,202,596 Total liabilities 1,778,059 1,388,020 1,158,183 Registered capital 223,926 45,700 45,700 Total Equity 164,815 (42,274) 44,412 Cash fund resulting from operating activities 46,185 5,298 2,666 Cash at the end of the period 115,446 46,422 36,618 C) Rate of return (%) Rate of Return on Assets (0.3) (4.8) (0.7) Rate of Return on Equity (9.0) (5,693) (15.3) D) Info on each share Number of shares on the date of General Meeting – Million Shares 223,926 45,700 45,700 Earnings per Share (EPS) (IRR) E) Other info Number of employees – People (at end of fiscal year) 17,031 17,562 18,347 Number of branches 1,440 1,612 1,661 Number of main branches (Foreign Exchange units) 40 41 40 TEJARAT BANK 23 4. INTERNAL AUDIT AND ENHANCING THE BANK’S INTERNAL CONTROL SYSTEM
According to Article 1 of the Internal Audit Practice Code, internal auditing is an independent and impartial assurance and consulting activity that is planned to create added value and improve operations. By adopting a systematic approach to assess and improve the effectiveness of operating, risk management, and internal controls; the internal auditing helps in achieving the Bank’s objectives. According to Article 2 of the Code, the scope of the internal audit function should be determined in such a way as to identify, assess and advise on risks associated with the management, operations and internal control systems of the Bank in relation to the following considerations: 1. The reliability and correctness of the financial and operational information of importance, and timely delivery of the information to the users; 2. Cost-Effectiveness, Efficiency and Effectiveness of Operation; 3. Quality control processes; 4. Protection of assets; 5. Observance of the laws and regulations, procedures, guidelines, rules and requirements of the industry and the provisions of the contracts.
Internal Audit Annual Plan Based on the Internal Audit Practice Code and in accordance with the objectives and tasks defined in the Code; the annual internal auditing plan is prepared at the end of each fiscal year by the Internal Audit Dept. and submitted to the Audit Committee for approval.
Major Achievements of the Internal Audit Dept. in 2018-19 In view of the calculations made regarding the time budget available to the Internal Audit Dept. and considering the priority of the identified risks (extracted from the comprehensive plan), the following cycles and units have been audited in 2018-19: The IT cycle including the internet banking systems management, data center management; The cycle of provisions and engineering; Human resources management including processes and systems for compensation of services; processes and systems for human forces planning; processes for training and development of human resources Inspection affairs management The cycle of investment Verifying the reliability of the report on analysis of the due dates of assets, debts and the data of Satrap Liquidity System Tejarat Investment and Construction Holding Pathology of macro risks in the area of IT Updating the data in the “Database Software” by the IT Auditors of the Internal Audit Dept. Reviewing the letter received from the management of the Independent Auditor, and collecting and Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 24 analyzing the replies of various units emphasizing on the necessity of Reviewing the state of discrepancy between the balance of timely submission of the results of Foreign Currency Reserve Fund with the CBI and Tejarat Bank the taken measures including notice of auctions, holding auctions, non- existence of buyer to the CBI in order Performance of the Audit Committee in to obtain the permit for extension of 2018-19 selling deadline for tax exemption The purpose of formation of the Audit Committee is to assist the Board of Directors in the fulfillment of its regulatory 2. Internal Controls Systems responsibilities in relation to financial reporting process, Review and approval of the internal control system, internal audit process and the Bank’s performance reports of the Audit processes for monitoring the compliance with the ethical rules Committee and the Internal Audit and regulations. In fact its duty is contributing in the fulfillment Dept. in 2017-18” of the Board of Directors’ regulatory responsibilities and its Review and approval of “the Report improvement to ensure the following: on the Progress in Implementing 1. The ability to rely on financial statements and financial the Internal Controls Total System” reporting related to the performance in 2017- 2. The existence of an efficient and effective internal control 18 to be presented to the CBI system Review and approval of “the Internal 3. The establishment of the internal audit unit and its continuing Control Report for the period ending operation efficiently and effectively March 2018” to be presented to the 4. The observance of the professional independence and Stock Exchange and Securities competence of the independent auditors and the effectiveness Organization of their performance Attempts to establish audit 5. The observance of the laws and regulations governing the committees in holdings and Bank’s business and moral rules companies of Stock Exchange, and promoting the quality of services rendered by such committees by Audit Committee Sessions qualifying the members proposed In 2018-19; the Audit Committee held 21 sessions in which by the Audit Committee technically the issues related to financial reporting, independent auditors, and professionally, holding sessions internal audit reports, and cases related to subsidiaries and examining the committees’ and holdings of the Bank were discussed and evaluated in performance compliance with Audit Committee’s Code and, the major issues are as follows. 3. Internal Audit Review and approval of the “Annual 1. Reliability of the Financial Statements and Plan of Internal Audit” Financial Reporting Review and approval of the internal Examining the annual financial statements of the Bank and audit reports of different sections of the Group for the fiscal year ending March 20, 2018, and the Bank the draft report of the Independent Auditor and important Revision of the Audit Committee’s paragraphs thereof including claims from Government, non- Code and Internal Audit Code performing loans, selling corporate stocks and the actuarial calculations 4. Independent Auditor Examining the latest measures taken to implement the Discussion and exchange of views reforms prescribed by the CBI in its letter of issuing permit for with independent auditors in several convening the General Meeting sessions of the Audit Committee on Reviewing the issue of the Bank’s capital increase from the various issues of financial reporting source of revaluation of assets and its different aspects in and the constraints facing them, the many sessions of Audit Committee with the participation the annual financial statements of of authorities from Financial Deputyship and Independent the Bank and Group ending March Auditors and suggesting solutions to Board of Directors 20, 2018, and biannual mid-term Examining the capital adequacy of the Bank after the ending Sep. 22, 2018, the draft capital increase from the source of revaluation of assets and report of the independent auditor suggesting solutions to Board of Directors and legal inspector, the report of the Reviewing the Independent Auditor’s special report on claims independent auditor on the details from Government in many sessions of the Audit Committee of foreign currency resources and with the participation of authorities from Financial Deputyship consumptions and assets and and independent auditors liabilities for the fiscal years ending Examining the issue of sale of the Bank’s owned shares in March 19, 2012 and March 20, 2013. the Stock Exchange (as prescribed by the Law on Elimination Providing the independent auditors of Obstacles to Production and Promotion of the National with required documentation Financial System approved in 2015, Article 16 – Para. b) and TEJARAT BANK 25 5. IMPLEMENTATION OF TRANSPARENCY STANDARDS
One of the accepted, and of course indispensable, principles in modern financial markets is the need to pay attention to the issue of transparency. The observance of transparency in all aspects of financial and non-financial performance of companies, in particular banks, is actually a guarantee of the soundness of their performance, thus eliminating the possibility of violations or disturbances in the financial system. Also, the observance of transparency in the provision of financial information is a major element in corporate governance. Therefore, the Central Bank of the Islamic Republic of Iran, by notifying “the Rules on the Minimum Standards of Transparency and Public Disclosure by Credit Institutions” in 2014, required the banks to release information related to the transparency within the framework set forth in the directive. In this regard, Tejarat Bank proceeded with releasing and updating the information required by the CBI through the Bank’s website at certain intervals. The release of the information required by the CBI may help the Bank’s shareholders and stakeholders to monitor the performance of the Bank for the purpose of the tasks assigned to them and in compliance with the Statute.
In addition to the necessity of transparency in the domestic arena, the importance of international communication with foreign correspondents more than ever necessitates paying attention to transparency in the international arena. In this regard, in addition to inserting the financial information and other performance reports of the Bank in English on the Bank’s website, the exchange of information needed by foreign correspondents on various aspects of the Bank’s performance is carried out in specific forms, which helps to the restoration of correspondent relations.
6. REPORT ON THE BANK’S RISK ANALYSIS
In line with the emphasis of the Central Bank of Islamic Republic of Iran on the necessity of the implantation of the corporate governance framework in banks (Circular No. 96/51935 of May 14, 2017), compilation of financial statements in accordance with the sample communicated by the CBI (IFRS) (Circular No. 97/233860 of Sep. 30, 2018), calculation of the capital adequacy in accordance with the Directive on Calculation of the Credit Institutions’ Regulatory Capital and Capital Adequacy (Circular No. 97/31434 of Apr. 25, 2018), and Directive on Corporate Governance of the companies admitted in the Stock Exchange (Notice No. 97/B/440/037 of Nov. 03, 2018), as well as considering that the traditional regulatory approach of the CBI has been modified to a risk-based approach; Tejarat Bank has adopted the necessary plans to keep pace with such approaches an also to establish the risk management governance based on Basel II and Basel III standards.
The Bank’s major strategy in the field of risk management is to achieve the Enterprise Risk Management (ERM), in such a way that in accordance with the Bank’s Risk Appetite Document, all risks in the Bank’s different business fields can be controlled and managed totally and relatedly by the relevant units. This process is directed by the Risk Management High Committee through increasing the capacities and activities of the Risk Management Subcommittees in the areas of credit risk, operational risk, liquidity risk and market risk.
1. Credit Risk The issue of improving credit risk management has always been one of the main priorities of Tejarat Bank. In this regard, considering the importance of nonperforming loans (NPL), the Bank has always tried to consider the issue of improving the credit risk management, reducing non-performing loans and covering sufficient reserves as its main objectives. In this regard, some of the Bank’s performance indicators that represent the status of credit risk are presented in the following table:
Credit Risk Indicators from 2016-17 to 2018-19 (%) Title of Indicator 2018-19 2017-18 2016-17 Net Deferred and doubtful claims to total facilities and claims 10.2 11.3 12.1 ratio Net LCs and LGs claims to total liabilities for LCs and LGs ratio 0.9 1.2 1.5
Reserves adequacy ratio 58.7 58.6 59.4 Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 26 As it can be seen in the table above, the Committee for Collection of the Bank’s Claims regularly. Bank’s claims ratio had a descending trend over the past three years. In 2. Operational Risk addition, in order to cover more credit The operational risk and its management have always been risk, some appropriate reserves have one of the major priorities of the Bank with regard to its wide been allocated for this purpose, so range and high impact. Therefore, in accordance with the that in 2018-19, the Bank’s ratio of international standard procedures (in particular the standards claims reserve showing an ascending of the Basel Committee), the risk management process in the trend was about 59%. In this regard, Bank is carried out in two ways: although some effective measures 1. Identifying the Bank’s Operational Risks by Risk Control were taken in recent years, including Self-Assessment (RCSA) Method: holding of regular sessions of the In 2018-19, the RCSA method was implemented in the Special Committee for Collection Bank’s International Banking domain and some appropriate of the Bank’s Claims, continuous risk control solutions have been developed and suggested monitoring of the status of claims in in the Operational Risk and System Security Management the regional departments, reviewing Committee. Also, the fields in which the said method has the scope of the powers of the been implemented are obliged to provide the Committee with regional departments in forgiveness their quarterly reports on the measures taken to reduce the of delay penalties, outsourcing the identified risks. collection of nonperforming loans, 2. Recording Operational Loss Events in the Operational Risk etc., which caused a reduction in the Management System (Loss Database) claims and claims ratios, but due to With regard to the establishment of the database of losses the current stagflation conditions and and the measurement of operational risk in the Bank; the the increased systematic risks, the information registrar users of the relevant divisions have situation of business, profitability and recorded about 2,387 operational risk losses in the operational liquidity of debtor customers has not risk management system by the end of 2018-19 year-end, been improved yet, and as a result, the based on which the risk management reports can be presented Bank is still facing the nonperforming in terms of various items (geographic area, type of loss event, loans (NPL) challenge. causes of loss event, etc.). Also, by entering the available data in the system in the coming years, we will be able to calculate The Bank aims to adequately the coverage reserve using this advanced method. manage the credit risk by covering Coverage reserve required for operating risk based on the its three areas including credit rating basic method (approved by the CBI) is provided in the following and validation of customers, credit table: portfolio (facilities and liabilities) management, and determining the Coverage Reserve Needed for the Operational Risk credit risk’s limits and potential. The Amounts in IRR million following are among the measures March March March Description taken or ongoing for managing the 2018-19 2017-18 2016-17 credit risk: Basic Method 5,778,986 3,512,449 2,830,508 Establishing validation system for natural and corporate customers and The coverage reserve calculated based on the above method obtaining a credit rank for all credit is used in the calculation of the capital adequacy ratio in clients, compliance with the new guideline communicated by the CBI. Revision and updating of the One of the ongoing plans during the current year in the field quantitative model of scoring and of operational risk management, is the implementation of rating for natural and corporate RCSA method in the field of the Bank’s human capitals and customers in expertise and completion of the Loss Database. information reports in the Bank’s internal validation system, Revision of the Bank’s credit process 3. Liquidity Risk According to the CBI’s guideline on the “Minimum Requirements based on credit risk as follows: for Liquidity Risk Management in Credit Institutions”, the Systematizing the credit process from liquidity risk is the likelihood of the credit institution’s inability the stage of requesting facilities to the to provide cash resources and or increased cost of providing settlement or collection of claims, cash for the debts repayment and fulfillment of obligations. In Monitoring of the credit behavior and this regard, the liquidity status (balance of the current account risk rating of customers periodically, with the CBI and the balance of the deposits received from Outsourcing the collection of the interbank market) has been monitored since years ago. nonperforming loans (Separating the By analyzing the trend of the relevant indicators such as collection process of nonperforming ratio of facilities to deposits; the Bank manages its resources loans from the facilities granting and expenditures status by holding regular sessions of the units), Resources and Consumptions High Committee. Holding the sessions of Special TEJARAT BANK
As shown in the table below, the Bank’s ratio of loans to deposits shows a descending trend, indicating 27 the Bank’s special attention to the optimal management of resources and expenditures with the aim of avoiding liquidity shortages. Also, the Bank’s ratio of cash assets to total deposits (which expresses the cash coverage of deposits) showing an ascending trend rose to 7% compared with the previous year, which is in a good status. Year 2018-19 2017-18 2016-17 Ratio of Facility to Deposits (after Deduction of the Regulatory 85.5% 88.8% 89.6% Deposit) Ratio of Cash Assets and the Like to Total Deposits 8.9% 4.8% 4.1%
In order to measure the liquidity risk based on due date categories, the liquidity risk assessment system based on the static gap table was operated and therefrom the Static Liquidity Gap Table, indicating the amount of liquidity deficit or surplus at the contractual due dates of resources and consumptions, was extracted. As measuring the liquidity risk based on the liquidity at risk (LAR) module requires the extraction of the Dynamic Liquidity Gap Table (realization of the liquidity gap’s behavior), the related program has been on the agenda since 2018-19 and continues in 2019-20.
Also, for the better compliance of the Bank’s liquidity management process with the requirements communicated by the CBI, the guideline for “Measuring and Monitoring the Liquidity Risk”, “Stabilization and Diversification of the Financing Sources and Management of Accessibility to Market” and “Liquidity Risk Crisis Test” were compiled and presented to the Liquidity Risk Management Committee to be approved. 4. Market Risk “Market risk” refers to risk of adverse fluctuations in market prices or rates of the assets included in the Bank’s trading portfolio. By definition, market risk occurs when the Bank actively buys and sells assets, liabilities and derivatives, not when it holds such items for long-term investment, financing and security purposes. In other words, the market risk is related to the Bank’s trading portfolio, not to its banking activities portfolio. The trading portfolio includes assets, liabilities and derivative contracts that can be quickly traded in organized markets; but long-term investment portfolio includes assets and liabilities that are non-cash and held for more than one period. Given the fact that the Bank’s portfolio includes foreign currencies and stock, therefore the market risk will be assessed based on risks of these two types of assets. 4-1- Foreign Exchange Portfolio Risk According to the standards of the Basel Committee and the calculations made, the Bank’s foreign exchange portfolio risk (open position) is presented in the table below. Here, the historical simulation and bootstrap methods are used for the risk calculation.
Open Foreign Exchange Position (Portfolio) Risk of Tejarat Bank (Amounts in IRR billion) Description 2018-19 2017-18 Open Foreign Exchange Position before Deduction of Bartered Facilities 76,503 34,996 Portfolio Risk: Historical Simulation Method 348 144 Bootstrap Method 354 160 Ratio of Coverage Reserve to the Bank’s Capital Base* 3.3 2.5 Open Foreign Exchange Position after Deduction of Bartered Facilities** 35,135 11,802 Portfolio Risk: Historical Simulation Method 159 41 Bootstrap Method 165 51 Ratio of Coverage Reserve to the Bank’s Capital Base 1.43 0.77
* The amount of coverage reserve is derived from the maximum differential between the last day risk and the average risk of 60 days past. ** The purpose of the bartered facility is to clear the Bank’s foreign currency liability from the foreign exchange reserve account with the account of claims from Government over the past years. Since the settlement of such facilities (a significant part of which has been in the claims headings) are generally carried out in domestic currency (Iranian Rial, IRR) in accordance with the incentives announced by the CBI; it is reasonable that such currency assets should be withdrawn from the Bank’s open currency position. Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 28 4-2- Stock Trade Portfolio Risk According to the explanations presented in the market risk section and according to the standard of Basel Committee; the transactions portfolio is used to calculate the stock portfolio risk. Also in this section, the historical simulation and Bootstrap methods are used to calculate risk.
Stock Portfolio Risk Status (Amounts in IRR billion) Description 2018-19 2017-18 Stock Portfolio 20,981 14,300 Stock Portfolio Risk: Historical Simulation method 434 167 Bootstrap method 406 163 Ratio of Coverage Reserve to the Bank’s Capital Base (%) * 6.6 3.1
* The amount of coverage reserve is derived from the maximum differential between the last day risk and the average risk of 60 days past.
As it is seen, along with the increase in the value of the stock trade portfolio (in terms of Iranian Rials) in 2018-19 compared with 2017-18 year-end (due to rising stock prices), the stock portfolio risk increased, which may attributed not only to the increased value of portfolio but also to the price volatility of stocks, the more concentration in the stock portfolio and the interaction among the internal components in the trade portfolio. Also it can be seen that proportional to the increased value of the stock trading portfolio and its involved risk, the required coverage reserve was also increasing. 4-3- Market Risk (Total) (Amounts in IRR billion) Description 2018-19 2017-18 Banks Trading Portfolio (including foreign currency & stock) 61,128 49,296 Market Risk: Historical Simulation method 566 225 Bootstrap method 548 234 Ratio of Coverage Reserve to the Bank’s Capital Base (%) * 7.5 4.1
As shown in the table above, following the increase in the value of the portfolios of stock and foreign exchange (open foreign exchange position), market risk increased last year compared to 2017-18 year- end.
It is noteworthy that as a result of the increase in the value of trading portfolio of the Bank compared with the end of 2017-18 (including the stock trading portfolio and the net open foreign exchange position), the return on portfolio (caused by rising prices) as well as the portfolio risk increased. 5. Risk Management High Committee This committee has been formed to assist the Board of Directors in the following cases: Development of general strategies for managing various risks in the Bank Determination and suggestion of the risk limits Control of the Bank’s risks Analysis of the current and future status of risks In 2018-19; the Risk Management High Committee held eight sessions, during which the most important cases were handled and the issued approvals are as follows: Decision-making with regard to the communication of the circular on determining the scope of powers of the bodies for determining the ultimate credit risk rank of the client Examining the new circular on the capital adequacy and the importance of the front office personnel’s knowledge about it The comparative comparison of Tejarat Bank with other Stock Exchange banks in terms of the risk indicators on March 20, 2018. TEJARAT BANK 29 Examining the report on the current facilities collateral coverage status based on the collaterals risk coefficients specified in the new Directive on Capital Adequacy Examining the contents of the CBI’s circular regarding the Directive on Credit Risk Management of Malaysian Finance and Credit Institutions Examining the risks reported by the subsidiaries of the Bank’s financial holding in execution of the Code of Risk Management of the Bank’s Subsidiaries and Holdings Evaluation of the possibility of compilation and implementation of the Risk Management Information System (RMIS)
7. INFORMATION SECURITY UNIT
Along with the expansion of the use of PCs and the emergence of computer networks and the Internet, the lives of computers and their users have undergone fundamental changes. Nowadays, the dangers and threats of attackers, who attempt to disrupt, destroy, or cause damage to internal, organizational, intranet and Internet networks, have become daily problems. On the other hand, data and information are considered as one of the major and valuable assets for any organization; so, their preservation and protection is a vital issue for organizations. Therefore, the issue of security and its creation in the electronic communications world is of special importance, in particular for today’s banks and institutions, whose major businesses depend on computers and computer networks. Accordingly, the Information Security Unit of the Bank, under the supervision of the Vice-Chancellor of Information Technology, has taken the following measures in this regard in 2018-19: Quality control of the Mobile Bank System Preparing the documentation for a way to implement the digital Certificate Authority (CA) of Tejarat Bank Designing and formulating the contractual requirements checklist to control the production accuracy and implementing the IT section’s products Examining and commenting on the potential impacts of a scenario of global internet outage on the sustainability of the Bank’s internet services Preparing and providing documentation for security of virtualization platform of VMware vSphere Modifying the NDA (Non-Disclosure Agreement) document by identifying risks such as giving information to companies or entities before concluding contracts or giving information to companies in bidding documents Modifying in providing individuals with access to the Bank’s systems Gathering documentation related to preparing and formulating the gap analysis document and holding sessions with contracting companies in the field of security standards and choosing a contracting company to implement BCMS standard Implementing the Information Security Management System (ISMS) based on ISO 27001 Conducting the Penetration Test projects to control the security level of the Banking systems available to the public Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 30 8. ENFORCEMENT OF THE COMPLIANCE STANDARDS
In accordance with the national and international standards, The Compliance the primary task of the Compliance section, is to manage Committee and reduce the likelihood of being subject to penalties, legal In line with the Directive of the CBI punishments, regulatory punishments, bearing significant and the principles of corporate losses and damage to the Bank’s reputation. Considering governance, the “Compliance that one of the major upstream documents is the Directive on Committee” was formed in the Bank Corporate Governance Requirements; Tejarat Bank adopted with the objective of overseeing the the necessary plans and measures to establish this system management of risks arising from complying with the communicated directive, and approved and non-compliance with the laws and implemented the policies and procedures on the compliance regulations, codifying and approving with laws and regulations including reviewing the governance the Compliance Policy, ensuring committees and the requirements related to the compliance effective execution of the compliance risk management. In this regard, the effective measures taken procedures and adopting appropriate to create the infrastructure that led to the implementation of the remedial and disciplinary actions. activities carried out in 2018-19 can be categorized as follows: In 2018-19, the Compliance a) Establishing the independence of the compliance section Committee held 7 sessions and direct access to the Bank’s Board of Directors; to oversee the adequacy and b) Access to sufficient resources to effectively carry out the effectiveness of the compliance risk responsibilities; management, in which 37 topics in c) Using national and international advisers’ services to the fields of finance, credit, risk, AML, achieve the specified objectives. internal audit, international affairs, legal affairs, investment, compliance, The major measures taken in the Compliance section of procedures, guidelines, reporting, Tejarat Bank during the fiscal year 2018-19 are as follows: transparency, and the like were Applying the governance standards and pursuing proper discussed. Some of the topics and implementation of the corporate governance requirements, titles discussed at the Committee’s including codifying the Bank’s standard framework document meetings were as follows: and Compliance Code in accordance with such requirements 1. Review and analysis of all legal and Improving the Compliance Risk Management Process while regulatory issues emphasized in the studying and analyzing the gap between the Bank’s current preparation of financial statements and desired status and developing control and regulatory with the participation of the relevant measures with a precautionary approach in the area of divisions and departments. compliance 2. Review and identification of those Preparation and review of circulars and directives on the noncompliance cases that affect the compliance process in the Bank Bank’s reputation. Developing tools and creating an appropriate context to 3. Review of the Bank’s performance provide the compliance section with access to sufficient in creating and operating the joint resources to ensure proper implementation of the compliance profit system in accordance with the process related circular issued by the CBI Providing a roadmap to branches and units on how to identify 4. Examining the execution of the stakeholders, producers, and buyers in order to correctly circulars prohibiting the specific execute the KYCC, KYC and EDD processes cumulative depreciation of the Regular holding of sessions of governance committee of customers’ debts that are subject compliance periodically to a new moratorium, rescheduling Reducing the number the clauses in the bank audit report by or reclassification and accounting interacting with auditors of the Audit Organization, inspectors of depreciation for them based on the the National Inspection Organization, and upstream authorities previous level for optimal compliance risk management in the Bank 5. Review of warnings served by Providing the compliance policy and its approval by the regulatory authorities Bank’s Board of Directors and communicating it to all levels 6. Examining the state of the of the organization, as well as ensuring its establishment compliance with the individual limits and implementation in all executive units (including front and for major facilities and liabilities of the back offices) with continuous monitoring and developing a Bank systematic procedure to communicate with regulatory units for 7. Examining the quality of executing an effective compliance risk management the Directive on Article 21 of the Updating and approving new activities for the compliance unit “Law on Elimination of Obstacles to Creating a strong culture of compliance as an integral part of Production” and the failure to notify the Bank’s business and the governance body members, by this Directive in the Bank holding training courses and allocating a space in the Bank’s 8. Examining and analyzing the organizational portal Bank’s current and desired status TEJARAT BANK 31 gap in the areas of corporate governance 9. Examining the compliance degree of the operational processes in the area of KYC Registry 10. Examining the maximum net facilities/liabilities for relevant bodies and reporting them and prescribing equal conditions for receiving facilities/liabilities for the relevant bodies 11. Examining the executive measures regarding Articles 16 and 17 of the “Law on Elimination of Obstacles to Production” which require selling the assets and investments of the Bank’s affiliates and subsidiaries and the measures taken by the Investment Department 12. Emphasizing the observance of some provisions of the Anti-Money Laundering Law and reviewing and approving the Bank’s new AML/CFT questionnaire 13. Examining the precautions for the Open Foreign Exchange Position and the impact of sanctions on the amount of cash banknotes available with the Bank 14. Examining the draft statement on how to observe the Islamic jurisprudential rules and principles in the Bank’s business to satisfy the Article 101 of the Corporate Governance Requirements
9. ANTI-MONEY LAUNDERING AND COMBATTING THE FINANCING OF TERRORISM (AML/CFT)
In the recent decades, the global economy has faced the phenomenon of money laundering and its destructive effects on the economies of countries. Due to the development of banking products and services, more sophisticated financial relations, technological advancement and the increasing speed of monetary flows, banks and financial institutions in different countries have applied effective AML/CFT plans.
In line with the efforts of the Government of the Islamic Republic of Iran and international institutions to prevent money laundering and in order to implement the policies of the CBI, and also to take responsibility, show reverence for clientele, protect the interests of its customers and shareholders, and reduce operational risk; Tejarat Bank puts the necessary AML/CFT measures at the forefront of its business to provide a secure environment for dear customers.
In this regard, during 2018-19 like the routine of previous years, in addition to performing its duties and monitoring in accordance with the AML/CFT regulations and pursuing the assigned affairs; the Bank executed its AML/CFT plans with a focus on mechanizing the business processes in order to improve the results. Some major measures are as follows: Mechanization and systematic collection of the Suspicious Transaction Reports (STR) Identifying and deciding about offline and invalid accounts Examining and overseeing turnovers of non-resident foreign nationals’ accounts Responding to enquiries of judicial and regulatory authorities and enquiries of Financial Information Center Examining and following the 11 rules of AML/CFT system Currency Transaction Reports (CTR) for cash funds exceeding the prescribed limit Inspection of branches in provinces Holding training courses for instructors and new employees Holding training courses and briefings for the front office staff Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 32 10. THE BANK’S SERVICES FOR 11.1. Providing Electronic Products SOCIAL RESPONSIBILITIES and Services Debit and Hybrid Card: Tejarat During the past years Tejarat Bank as a loyal economic Bank in cooperation with Simorgh corporation has been well-known in meeting its social Tejarat Systems Co. provides its responsibilities and plays a significant role in various areas clients not only with magnetic cash such as school building, release of prisoners, financial support cards but also with multi-purpose of charities, etc. Pursuing this attitude, Tejarat Bank carried out cards that are usable as e-wallets. many services for fulfilling its social responsibilities in during Group Card: A group card is one of 2018-19, including: the multiple cards issued on a single Construction or completion of 13 schools in deprived areas account. The account holder as the of various provinces group leader can define the group Construction or completion of 9 rural health houses in members and each one’s chargeable deprived areas of provinces of Yazd, Kurdistan, Hormozgan, sum at scheduled intervals. Such a Semnan, Ilam, South Khorasan member can use his/her own card Releasing 70 prisoners of unintentional crimes with to withdraw money, purchase goods, cooperation of Iran Prisoners Release Organization (IPRO) pay bills and buy mobile phone Supply of clean drinking water by equipping and renovating recharge. The platform of this service water supply systems for rural areas in the provinces of is currently used to issue family cards, Sistan va Baluchestan, Hormozgan and Kerman with a credit revolving funds cards, tourist cards amounting to IRR 35 billion and World Food Program cards. Purchase of white canes for the blind up to IRR 360 million Subsidy Card of the World Collaboration of the personnel of Tejarat Bank in collecting Food Program: These cards are sacrifices (Nozurat) on the occasion of the anniversary of being issued at the request of the Arba’een of Imam Hussain (the third religious leader of Shias) World Food Program to transfer cash subsidies of Afghan and Iraqi refugees resettled in camps. Internet Banking (Natural and 11. THE BANK’S SERVICES AND Corporate Customers): Internet banking allows the customers PRODUCTS to save their time and money by The services that are provided to the clients based on the doing their bank affairs through the conclusions and rules of Islamic Banking are categorized in Internet not appearing in person five main sections that are: at a branch. Presenting a diverse Electronic Services that include rendering internet banking spectrum of banking services while services, internet payment services, card related internet observing the security and user services, Telephone Bank, Mobile Bank, various bank cards friendliness, is among the features of and e-wallets, SATNA and PAYA inter-bank transfer, and Tejarat Internet Bank. FARA Internet payment services at point of sales (POS, IPG). Bank is one of the individual and Deposit Services that include opening interest-free-loan customized services of Tejarat Bank (Qardh-ul-Hassanah) savings deposits, interest-free-loan which is designed and launched to (Qardh-ul-Hassanah) current deposits, short-term investment offer services to valuable corporate deposits, long-term investment deposits and various deposit customers. This service is web- schemes for clients. based, and in addition to its unique Providing facilities and accepting commitments that include features, allows for linking with the granting facilities in the sectors of agriculture, process industry, customers’ financial and accounting industry and mine, construction, service, contracting and software systems. commerce, as well as issuance of LGs and opening domestic Mobile Bank: Due to the mobile currency LCs for clients. penetration rate around the country Providing foreign currency services to clients that include and people’s tendency to use the opening interest-free foreign currency current deposits, mobile banking; the new Mobile Bank interest-free foreign currency savings deposits and foreign service of Tejarat Bank was designed currency term deposits for clients, as well as money exchange, as user-friendly applications for all issuance of account certificates for clients, rendering services smart cellphones’ operating systems for opening LCs and bills of exchange, issuance of various to provide the clients of Tejarat Bank foreign currency LGs, etc. and other banks with a wide range Special Services of the Bank that are providing rental safe of account-based and card-based boxes, online stock exchange system, etc. services. TEJARAT BANK 33 Point of Sales (POS) and Internet Payment Gate (IPG): 11.2. Various Deposit Tejarat Bank has provided the possibility for payments of goods Schemes and services at a physical and virtual point of sales through Tejarat Bank offers a broad range authorized payment service provider (PSP) companies and a of bank deposits to meet the needs wide network of online POS’s and IPGs. Also, new generations of customers. Opening various of sales card readers such as PC-POS and PDA-POS with domestic currency deposits (interest- advanced options are provided to meet customers’ needs. free-loan savings accounts, interest- The statistics on the Bank’s electronic services and products free-loan current accounts and short- are listed in the following tables: and long-term investment deposits) and various foreign currency Statistics on the number of Tejarat Bank’s electronic deposits (foreign currency interest- services & tools free-loan savings accounts, foreign Description 2018-19 2017-18 currency interest-free-loan current accounts and foreign currency term Swift Branches 42 42 investment deposits) are among the PINPAD 3,770 4,144 services in this area. Some of those schemes are as follows: POS 361,962 346,301 Karamad Facilities: Karamad ATM 3,596 3,786 Scheme was designed to provide distinctive and special credit service, Debit Cards Issued 4,476,338 4,598,815 especially to the holders of POS and IPG machines linked with Gift Cards Issued 1,151,773 967,688 Tejarat Bank accounts based on the quarterly and biannual average Data on the number and amounts of transactions through balance of the current, short-term electronic channels and Qardh-ul-Hassanah accounts 2018-19 2017-18 with preferential rates (between 2 to Descriptio Amount of Number of Amount of Number of 18%). Transactions Transactions Transactions Transactions Afra: in Afra Scheme, the Murabaha (IRR billion) (IRR million) (IRR billion) (IRR million) credit card/Murabaha ordinary POS 1,070,199 662 634,843 455 loan at preferential rates (10.5% and 13%) and with an 18-month ATM 754,354 437 764,980 366 repayment period is granted based Mobile Bank 634,559 113 372,708 117 on the biannual average balance of a current card account holder (natural Internet 339,437 8 256,062 8 Bank persons and corporates). The ceiling of such facilities for natural persons Tourist Card: One of the major needs of incoming tourists is up to IRR 500 million and for is the ease and security of carrying money, and the most corporates up to IRR 5 billion. appropriate tool for this need is a bank card. For this purpose, Immediate Facilities: In order to the new product of Tejarat Tourist Card has been designed. meet customers’ immediate needs, A foreign tourist may use all POS’s and ATMs of Shetab and the Bank has facilitated the deposit- Shaparak Network during his/her stay. based facilities by providing the Easy Shopping: In order to provide new banking services Immediate Facilities Scheme. In this and increase the Bank’s commission fee revenues, and with scheme, any applicant client having the aim of increasing the purchasing power of clients and opened a term deposit account prosperity for business owners; Tejarat Bank has launched in Tejarat Bank can be granted a a network of buying and selling goods and services by loan amounting to 60 to 85% of installments titled Easy Shopping (Asan Kharid). Easy the deposited amount without a Shopping Network consists of a set of buyers and sellers of guarantor in less than 24 hours. In goods and services and any holder of an Easy Shopping card the Immediate Facilities Scheme (buyer) can refer to a member seller of the Easy Shopping of Tejarat Bank, the loan is granted Network (Acceptor), and purchase his needed goods or in the framework of a Murabaha service up to maximum IRR 2 billion and pay its price by contract. The maximum loan would installments. The number of installments and the price of be IRR 3 billion and the minimum goods are determined in an agreement between parties and interest rate on the loan would be the Bank guarantees the repayment of due installments to 4%. In the past year, considering the seller. By adding the ability of revolving credit to the Easy the customer needs assessments, Shopping plan, upon payment of each installment the credit is Tejarat Bank designed some facilities re-charged by the same amount of the paid installment. schemes in order to create value Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 34 added in the assets of customers and optimize the use of the Bank’s resources for boosting the domestic production. 11.3. Acceptance of the Commitments of LGs and LCs Accepting the commitments including issuing LGs and opening LCs in both domestic and foreign currency are among the main business lines of Tejarat Bank, so that it is known as the pioneer bank in this field in Iran.
Statistics on Tejarat Bank’s Commitments (IRR billion) Description 2018-19 2017-18 2016-17 Balance of Commitments for Foreign Exchange LGs 107,427 62,134 48,735 Balance of Commitments for Rial LGs 192,581 149,972 138,675 Balance of Commitments for Foreign LCs 164,529 125,522 96,261 Balance of Commitments for Domestic LCs 70,913 24,720 14,953 11.4. Products Designed for Target Markets: Service package for health and treatment sector: in order to respond to a part of needs of the health and treatment market, a service package was designed and provided consisting of the following: - Providing electronic payment service in the form of dynamic sharing - Granting MedPay scheme (granting facilities to the centers of treatment services, physicians, the staff of treatment services centers) - Instantaneous Scheme specific to physicians - Experts Scheme Kariman Scheme: This scheme was designed to provide facilities to Sunnis, benefactors and philanthropists, corporates, and charities. In this scheme, a natural person or a legal entity opening an especial Qardh-ul-Hassanah (interest-free-loan) account may sign an agency contract with the Bank, and based on the contract and using the deposited funds, may nominate any natural person or public and charitable organization to be granted an interest free loan. 11.5. Customized Services for Customers In order to keep customers satisfied and according to their transactions with the Bank; Tejarat Bank designs and offers some customized services including: System for settlement of transactions of capital market brokers Banking services for the blind System for Payame Noor University System for Management of funds of Iran Engineering Organization Indexed payments for insurance companies. 11.6. Rental Safe Boxes One of the services of Tejarat Bank is to provide the customers with rental safe boxes in some branches to protect their assets and belongings. 11.7. Providing Financial Supermarket Services: Financial supermarket services were put on agenda to complement the Bank’s value chain and increase commission fee revenues, whereby a variety of financial services can be provided with the nature of insurance, brokerage, leasing, currency exchange, and so on. At present, insurance services are offered to clients through the Bank’s selected branches and by representatives of Tejarat Nou Insurance Company. TEJARAT BANK 35 staff every year. Also in recent years, 12. INTERNATIONAL ACTIVITIES in order to reduce the costs, the Bank has adopted an approach to conducting virtual training courses The latest status of different types of foreign currency deposits along with the in-service trainings. In with Tejarat Bank in 2018-19 is listed in the following table. 2018-19, totally 14,823 employees Statistics on Foreign Currency Deposits of the front and back offices passed (Amounts in USD million) 1,271,094 hours of training. The Description/year 2018-19 2017-18 Bank’s performance in human capital Interest-Free-Loan Savings training and development during 204.7 140.4 Deposit 2018-19 is as follows: Term Deposit 646.3 645.2 Table of Tejarat Bank’s Current Interest-Free-Loan 298.9 190.7 Performance in Human Resources Deposit Development & Training It is noteworthy that, despite all difficulties and obstacles During Fiscal Year 2018-19 arising from unilateral sanctions, Tejarat Bank still has a good Number of Training performance in the area of foreign exchange commitments in Group Personnel Hours in the banking network. A summary of the statistics in the field (People) 2018-19 of the Bank’s foreign exchange commitments in 2018-19 is Personnel shown in the following table: of Back 2,006 152,998 Office Statistics on Tejarat Bank’s Commitments in Fiscal Year Personnel 2018-19 of Front 12,817 1,118,096 (Amounts in USD million) Office 2018-19 2017-18 Total 14,823 1,271,094 Description/year Number Price Number Price Issued Foreign Exchange LGs 226 246 227 231 during the Fiscal Year 14. OPTIMIZATION Balance of All Issued Foreign OF THE BRANCHES 941 1,434 944 1,652 Exchange LGs NETWORK Commitments Opened LCs In order to realize the Bank’s within during the 1,132 1,148 2,704 2,511 strategies and considering the Fiscal Year importance of the branches network Balance of LCs as the Bank’s executive arm, the 948 3,314 1,713 2,196 Commitments activity level of the branches network Inward Bills of needs to be constantly improving. 1,739 1,505 1,513 1,995 Exchange Accordingly, in order to implement Outward Bills of the branches network optimization 1,739 1,668 3,964 2,285 Exchange program, during the fiscal year 2018- 19, the Bank merged 173 branches Due to the new conditions, the Bank has also mechanized into other branches and transformed the foreign exchange trading system at the free market rates one counter into a branch with and strengthened the foreign exchange trading section in the promoting its business. As a result, Bank. the domestic branches number from came to 1,438 at 2018-19 year-end from 1,610 at 2017-18. Also, with the closure of 48 counters, a total of 221 13. HUMAN CAPITALS TRAINING units of the Bank have been closed in line with the approach of reducing AND DEVELOPMENT costs, improving the organization’s agility and achieving the Bank’s In today’s world, human capital is the most valuable resource major objectives. This strategy is of an organization, which provides potential for implementing also on the agenda for the coming strategies and plans and realizing organizational goals. As an years with the aim of ameliorating organization enhances with the growth of its human capital, organizational efficiency. the staff training is considered as a major priority in Tejarat Bank. Accordingly, special training programs are offered to Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 36 Tejarat Bank’s Domestic Branches Network Classified in Terms of Provinces At 2018-19 Year-End Number Row Province Number of Row Province of Branches Branches 1 Alborz Province Branches Division 35 18 Qom Region Branches Division 29 East Azarbaijan Region Branches 2 Division 58 19 Kurdistan Region Branches Division 28 West Azarbaijan Region Branches Kermanshah Region Branches 3 Division 47 20 Division 43 4 Ardebil Region Branches Division 22 21 Kerman Region Branches Division 45 Kohgiluyeh va Boyrahmad Region 5 Esfahan Region Branches Division 94 22 Branches Division 12 6 Ilam Region Branches Division 16 23 Guilan Region Branches Division 45 7 Bushehr Region Branches Division 31 24 Golestan Region Branches Division 28 Chaharmahal va Bakhtiari Region 8 Branches Division 15 25 Lorestan Region Branches Division 26 Khorasan Razavi Region Branches Mazandaran Region Branches 9 Division 89 26 Division 57 South Khorasan Region Branches 10 Division 16 27 Markazi Region Branches Division 28 North Khorasan Region Branches 11 Division 11 28 Hormozgan Region Branches Division 36 12 Khuzestan Region Branches Division 97 29 Hamedan Region Branches Division 23 13 Zanjan Region Branches Division 23 30 Yazd Region Branches Division 25 14 Semnan Region Branches Division 23 Total in Provincial Regions 1,162 Sistan va Baluchestan Region 15 Branches Division 36 Total in Tehran Province 276 16 Fars Region Branches Division 94 General Total of the Bank 1,438 17 Qazvin Region Branches Division 30
15. MAJOR PLANS AND MEASURES IN THE BANK’S OTHER FIELDS Some other measures and plans that were on the agenda of different fields of the Bank to reach the Bank’s objectives in 2018-19 are listed in the following table: Field’s Name Major Programs and Measures Taken in 2018-19 Provinces Downsizing of the branches number by 174 Developing the Total System for Bank and Interbank Checks Encryption Inspection Improving the distance monitoring of branches’ performance International Signing contracts with at least 6 authorized money exchange offices Procurement & Renovation of branches (120 branches and 5% of counters) Engineering Quantizing the indices and factors effecting risk appetite and suggesting Risk Management improvement solutions Reviewing and updating the Bank’s procedure of strategies Pathology and optimization of the services of Internet Bank Organization and Methods Pathology and optimization of the Customer Relation Center (1554) Modeling and predicting turnover behavior of customers in banks Investment Completion of the capital of Tejarat Nou Insurance Company Human Capitals Implementing the Health Monitoring Plan in all provinces Launching and operating the 7.1 version of SHETAB according to ISO8583 Conducting the Penetration Test of the Bank’s Systems Information Technology Developing the new Mobile Bank Equipping and operating the Bank’s backup website Financial Capital increase sourced from the assets revaluation Service Design & Product Feasibility study on using a blockchain in rendering services Development Corporate Banking Developing corporate banking (according to the Corporate Banking Prospect Plan) Management Mechanizing the collection of Suspicious Transaction Reports (STR) from Anti-Money Laundering branches Formulation of a standard framework for documents, preparation of the Compliance Unit Procedure and Code of Compliance according to the principles of corporate governance TEJARAT BANK 37 CHAPTER THREE FUTURE GOALS & PLANS OF THE BANK Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 38 This chapter details the Bank’s Bank is visualized as the first choice of customers, Tejarat strategic document including pivotal Bank has determined the following core objectives, and by objectives, macro strategies, and adopting strategies and operational programs, has focused operational plans for each unit of all the efforts of the directors and employees to fully realize the Bank to be implemented next such objectives in certain scheduled time horizons. These year. As we know, strategies need objectives are as follows: to be reviewed periodically based Enhancing the Bank’s portion in the country’s liquidity on their inherent nature. Scheduling Enhancing the Bank’s portion in the total liabilities of the such periods will be carried out banking network considering many factors including Reducing the Bank’s non-performing loans changes in the macro environment, Upgrading the level of e-banking services changes and developments in Improving the level of customers satisfaction the specialized environment and Improving staff’s efficiency organizational issues. In Tejarat Bank, Enhancing the ratio of non-joint income to total income of this matter is scrutinized considering the Bank the aforementioned examinations Improving the efficiency and the operating profit margin as well as the internal and external Improving the profitability of the Bank’s Investments comparative studies in the field of Improving the level of internal controls and financial health banking. Growth of profitability Generally, the Bank’s strategic document deals with the following items: Reviewing the macro environment 2. THE BANK’S MAJOR of banking industry STRATEGIES Reviewing and updating the Bank’s strategic objectives according to its mission, vision and values. The strategies should be planned in such a way to include The strategic approach of Tejarat all aspects of the banking industry and define a clear line of Bank to encounter severe changes in future for the Bank in the special circumstances caused by environmental variables the country’s sanctions. The significant issue in implementing Formulating essential pivots under strategies and formulating pivots in Tejarat Bank is that the eight strategies of the Bank the sentences and phrases are expressed in simple and In the past year, as usual, the Bank’s unambiguous statements so that all the employees of Tejarat operational plans were prepared for its Bank may have an equal and common understanding of them different units; and the performance of and strive to proceed with actions to be maximally aligned each operational field (credit, financial, with such strategies. Therefore in order to create a common international, legal, human resources, understanding in the body of Tejarat Bank, it is necessary to investment, risk management, formulate the concept of each strategy in an operational and AML, etc.) are evaluated in details executable way. Accordingly, the relevant pivots under each at three-month intervals. During strategy were also defined so that they may, in addition to such evaluations; the obstacles and instilling a common organizational sense, play a significant difficulties in implementing each one role in making the strategies implementable as well. The list of of the plans are determined and tried the strategies of Tejarat Bank is as follows: to be removed in collaboration with the 1. Market development and diversification in the provision of related units, so that such plans may services be implemented on time. This process 2. Development of the Bank’s businesses based on the future is in fact a continuous workflow which banking evolutions then will lead to implementing the 3. Making properties and investments profitable strategies and finally realizing the 4. Upgrading the level of credit performance macro-level objectives of the Bank. 5. Upgrading the level of the Bank’s performance in the international field 6. Upgrading the level of regulatory and control activities 7. Developing and optimizing the IT field 1. THE BANK’S 8. Development of the human capital PIVOTAL OBJECTIVES
In order to realize its future perspective document, in which the TEJARAT BANK
small and medium-sized enterprises 39 3. THE MAJOR PLANS FOR THE (SMEs). Financing through factoring is conducted by concluding a contract FOLLOWING YEAR between the seller and the agent based on the claim transfer. Collaboration with Fintechs (FT’s) and Startups To support the fintechs and startups and to use their Improving the information security in development and innovation capabilities in provision of services the Bank and development of businesses; Tejarat Bank defined a plan With the development of information last year on collaboration with fintechs and startups. In the first technology and considering the phase of the plan, the strategies for the Bank’s collaboration importance of customers’ information; and interaction with such companies were formulated. In improving the level of information the second phase of the plan, the implementation of the first security and reducing the operational phase’s yields including providing for its connectivity to the risk is on the Bank’s agenda. Also in banking infrastructure, and supports such as investment, order to monitor and control round-the- guidance and leading are on the agenda for the 2019-20. clock and identify the security threats and to prevent risks and appropriately Integrated Electronic Securities System respond to computer security events; In line with the policies of the CBI requiring the traditional the design and implementation of process of buying and selling securities to be modified from centers for “security operations” and physical form to the electronic form; the operation of the “computer rescue and relief” are in prescribed system is on the agenda. progress and about to be completed.
Implementation of Enterprise Risk Management (ERM) Improvement of security / equipment Many plans have been put on the agenda and executed in of the Bank’s sites the previous years to implement the ERM in the Bank. The In order to prevent any interruption pilot implementation of the Risk Appetite Document and the in providing services to customers; establishment of the Risk Management Information System Tejarat Bank has presented some (RMIS) are among the major plans to accomplish the Enterprise plans to improve the security of its Risk Management in 2019-20. main, backup and crisis sites. In this regard, the program for optimizing Making the Bank’s Assets Productive through a Profit the mainframe-based software and Generating Company hardware infrastructure at the sites Making the Bank’s assets productive is on the agenda in order can be mentioned. to reduce the volume of possessory assets, avoid blocking the Bank’s resources, create added value from stagnant and Project of Transition to Core Banking unsalable assets and diminish the toxic assets in the Bank’s System balance sheet. This approach not only results in disposition of In order to optimize the operational the excess assets of the Bank but also will, in view of a macro infrastructure and develop a perspective of the Resistance Economy policies, lead to job centralized system in the Bank, the creation and GDP growth. Core Banking project has been put on the agenda since last year, during Formulating the roadmap of digital banking which the studies and preliminary Nowadays, with the ascending effect of technology on people’s measures were taken for executing daily lives, on the one hand, and the changed attitudes and the project. According to the time behaviors of customers, on the other hand; banks have to schedule, the five modules of change and transform more than ever before. In order to customers and configuration, facilities respond appropriately to this trend of market and technology, and credits, accounts and deposits it is necessary for banks to transform their business to the management, accounting and ledger, digitalization approach, in order to, in addition to improving and cashier and treasury will be the customer satisfaction, optimize their costs and processes. implemented by 2020-21 year-end. Considering the importance of this approach, the Bank has introduced the Digital Banking Implementation Roadmap Re-branding in the Bank and project as a major activity in the field of business and planning defining the visual elements of the in 2019-20. brand This program aiming at improving Examining and presenting a pattern of using financing tools the image of the Bank’s brand and in the form of factoring increasing the customer satisfaction Considering that the financing of customers is a major mission with the level of services provided by of the Bank, therefore, after examining different methods, the Bank is on the agenda. The study the issue of providing a model for using the financing tool of phases, examining the contact points factoring is on the agenda. Factoring is one of the methods and identifying the strategic elements of financing through receivable accounts for financing of of the brand (conceptual nature of the Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 40 brand) were carried out in 2018-19. Formulation of the strategy for the architecture of the brand, the strategy for the contact points, review of the visual/verbal/cultural nature of the brand, and then its intra- and extra-organizational implementation will be carried out in 2019-20.
Implementation of the development phase of business banking In order to move towards the comprehensive banking and change the business model, the initial studies of the program were conducted during the fiscal years 2017-18 and 2018-19. Since September 2018, the Business Banking Unit of the Bank has been established and this banking model was implemented as a pilot in one of the regions of Tehran. In 2019-20, the operational development of the business banking will be on the agenda for all regions of Tehran and some selected regions of other cities.
Development of the validation system Considering the successful implementation of the internal validation system in Tejarat Bank over the preceding years; in order to improve performance and increase the accuracy and speed in the facilities granting operations, the development of this system is on the agenda to include various dimensions such as eliminating the physical sending of documents for verification by credit authorities, establishing direct links with the system of the Official Gazette of Judiciary, management of executive approvals and approvals in progress and other cases. In this regard, some requirements such as systematic appointments of the credit approving authorities and mechanized issuance of the authority scope cards for the credit committees in the Bank are in progress in 2019-20. Obviously, the development and improvement of the system in the long run will lead to the control of the incurrence of non-performing loans (NPL), which will ultimately result in rising cash flow and thus improvement of the Bank’s income status.
Examining and implementing the digital (electronic) signature in the Bank In order to implement the digital signature in the Bank and in the first phase of its usage in scanning branch documents and according to the CBI’s requirement; it was so decided that all the required documents be scanned in order to prepare the electronic versions of the Bank’s documents and then some of them should be eliminated and destroyed considering each one’s creation date and classification. It is also noteworthy that the digital signature infrastructure can be used for other operational systems, specifically in the section of services and banking products. TEJARAT BANK 41 CHAPTER FOUR GENERALITIES OF THE BANK FINANCIAL PERFORMANCE Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 42 1. THE BANK’S POSITION IN THE BANKING INDUSTRY
The following table shows the Bank’s position in terms of various important indicators of performance among 10 major banks of the country in 2018-19. This year, as in previous years, Tejarat Bank managed to maintain its prime position in the field of LG commitments being remarkably superior to other competitors. Net Number Domestic Number of Facilities LC LG Time Description of Currency Employees & Commitments Commitments Branches Deposits Claims Tejarat Bank 17,031 1,438 1,261,562 522,534 339,903 300,510 March Portion of 11.3% 10.3% 11.7% 8.1% 17.3% 31.3% 2019 Total Ranking 4 6 4 6 2 1
* The ten banks included in the comparison are Bank Melli Iran, Bank Saderat Iran, Bank Mellat, Bank Sepah, Maskan Bank, Agriculture Bank of Iran, Refah K. Bank, Bank of Industry and Mine, Export Development Bank of Iran, and Tejarat Bank; among which the data of general ledger are exchanged.
2. ANALYSIS OF THE MAJOR VARIABLES’ TREND
2.1. Deposits The following diagram shows the Bank’s total balance of foreign and domestic currency deposits during 2012-13 to 2018-19. As shown in the diagram, the balance of deposits at 2018-19 year-end came to IRR 1,420 trillion showing a 28.1% growth compared with 2017-18 year-end.
Diagram of Total Deposits (IRR billion) 1,420,283 1,108,947 957,126 820,924 707,815 637,723 491,833
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 TEJARAT BANK 43 2.2. Composition of Deposits The analysis of the Bank’s deposits (foreign and domestic currency) at 2018-19 year-end is shown in the diagram below. According to the analysis of the Bank’s deposits; the portion of the items with no cost including current deposits, savings deposits and others is equal to 27.4%; and the portion of the items with cost including short-term and long-term investment deposits is equal to 72.6%.
As the result of the planning made in 2018-19; the Bank has improved the composition of its deposit portfolio, so that the Bank’s zero-cost deposits amounted to IRR 389 trillion on March 20th, 2019, from IRR 223 trillion on March 20th, 2018, growing by 75% compared with the same date of the previous year; and such deposits’ portion of total deposits rose to 27% from 20% during the same period.
Analysis of Deposits at 2018-19 Year-End
4.9% 17.5%
% 5% 47.2
Long-Term Investment Deposits Short-Term Investment Deposits Interest-Free-Loan Deposits and the Like Sight Deposits 25.4% Other Deposits
2.3. Facilities The following diagram shows the growing trend of the total foreign and domestic currency facilities granted during 2012-13 to 2018-19. As shown in the diagram, the balance of facilities at 2018-19 year- end stood at IRR 688,281 billion growing by 25.7% compared with the previous fiscal year. Also, in execution of the provisions of the State Budget Law (Clause V, Note 5) of 2018-19, an amount of IRR 12,160 billion of the debt to the CBI has been bartered with granted facilities and claims from non- governmental entities. Diagram of Total Foreign and Domestic Currency Facilities (IRR billion) 688,281 547,459 483,177 453,194 436,037 384,449 321,035
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 44 2.4. Composition of Domestic Currency Facilities in terms of Sectors The following diagram shows the sectorial distribution analysis of the facilities granted by the Bank in different economic sectors in 2018-19. As shown in the diagram; the major part of the facilities of the Bank (about 68%) are allotted to productive sectors (industry and mine, housing and construction, and agriculture), indicating the Bank’s support of the productive and job creating sectors.
Analysis of Facilities in Different Economic Sectors in 2018-19
1%
27% 31% 25%
Industry and Mine Housing and Construction Agriculture Commerce and Services 16% Export
2.5. Equity At the end of fiscal year 2018-19, the Bank’s capital amounted to IRR 223,926 billion and the accumulated loss amounted to IRR 109,513 billion. The trend of changes in the components of the Bank’s equity can be seen separately as follows. Description / Year 2016-17 2017-18 2018-19 Capital 45,700 45,700 223,926 Retained Loss (16,199) (103,992) (109,513) Surplus from Revaluation of Assets 0 0 30,439 Other 14,912 16,017 19,963 Total Equity 44,412 (42,274) 164,815
In 2018-19, the Bank increased its capital by revaluation of assets to IRR 208,665,587 million, of which, based on the permit issued by the Stock Exchange Organization, the amount of IRR 178,226,127 million was identified as capital and the amount of IRR 30,439,460 million was transferred to under the topic of assets revaluation excess.
The Bank’s 390% capital increase sourced from the assets revaluation not only made the Bank the largest company in the Stock Exchange but also provided it with an opportunity to exit from inclusion in the scope of Article 141 of the Commerce Code Amendment. Also, since raising capital sourced from cash input improves the profitability and regulatory ratios, in order to use this potential, the Bank has the feasibility study of raising capital from cash input on agenda. The trend of the Bank’s equity changes is shown in the following diagram. TEJARAT BANK 45 Equity Balance of Commitments on Foreign and Domestic (IRR Billion) Currency LGs (IRR billion) 300,510 164,815 212,106 187,411 180,833 169,297 159,571 135,988 44,412
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
2.7. Commitments on LCs (Letters of Credit)
(42,274) The following diagram shows the data on the balance of commitments on the issued LCs from 2012-13 to 2018- 2016-17 2017-18 2018-19 19. The balance of the commitments at 2018-19 year-end, growing by 58.7% compared with the previous fiscal year, 2.6. Commitments on came to IRR 238.415 billion. LGs (Letters of Due to foreign exchange rate fluctuations in 2018-19, the Guarantee) balance of foreign LC commitments rose by 33% and the The following diagram shows the domestic LC commitments grew significantly by 187% data on the balance of commitments compared with 2017-18 year-end. on the issued LGs (foreign and domestic currency) during a seven- year period. As shown in the diagram, the balance of the commitments at Balance of Customers’ Commitments for LCs 2018-19 year-end growing by 41.7% (IRR billion) compared with 2017-18 year-end came to IRR 300,510 billion. 238,415 It is noteworthy that in terms of the definite and contingent LGs commitments, Tejarat Bank holds the first rank among all the governmental and private banks; so that Tejarat 150,248
Bank accounts for 31.3% of the total 132,992 LG commitments of the10 major 111,220 banks nationwide. 104,900 91,363 83,502
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 46 2.8. Income The following table shows the Bank’s total income as analyzed into components for 2017-18 and 2018- 19. The Bank’s total income, growing by 42.6%, rose to IRR 218,851 billion from IRR 153,462 billion in 2018-19 year-end. The portions of each component of the Bank’s income in 2018-19 is shown in the diagram below. 2017-18 2016-17 Ratio of Description / Fiscal Year Balance Balance Change (%) (IRR billion) (IRR billion) Revenues from facilities granted, depositing and Bonds 124,473 165,240 32.8
Revenues from Commission Fees 7,745 11,206 44.7
Net Profit of Investments 10,215 2,344 (77.1)
Net Profit from Foreign Exchange Deals and Transactions 8,512 35,662 318.9
Other Operating Revenues and Costs 36 189 431.5
Net Other Revenues and Costs 2,481 4,210 70.3
Total Income 153,462 218,851 42.6
Analysis of Income in the Fiscal Year 2018-19
2% 16% 1% 5% 76%
Revenues from facilities granted, depositing and Bonds Revenues from Commission Fees Net Profit of Investments Net Profit from Foreign Exchange Deals and Transactions Net Other Revenues and Costs TEJARAT BANK 47 2.9. Profit Paid to Depositors The following diagram shows the upward trend of the profit paid to depositors. The payable profit in 2018- 19 declined by 4.7% compared with the preceding year and came to IRR 146,413 billion.
The Bank attempted to modify the composition of the deposits portfolio and thus reduce the cost of deposits in 2018-19. This resulted in a 2.3% decrease in the money cost rate of term deposits at 2018-19 year-end compared with the preceding year-end. The fall in the money cost rate, despite the 14% growth in the domestic currency term deposits, led to a 5% decline in the interim profit paid by March 20th, 2019.
Trend of Profit Paid to Depositors (IRR billion) 153,671 146,413 131,514 117,425 95,599 63,269 44,424
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
2.10. Net Profit (Loss) The following chart shows the trend of the net profit (loss) over the fiscal years 2012-13 to 2018-19. Its downward trend during the middle years is due to the conditions of sanctions and economic downturn.
Trend of Net Profit (Loss) (IRR billion) 5,650 4,130 4,000 (5,521) (6,677) (7,472) (60,859) 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 48 3. THE MAJOR FINANCIAL INDICATORS AND RATIOS
3.1. Agents Efficiency Indicators The efficiency indicators of branches and personnel during the fiscal years 2017-18 and 2018-19 are shown in the following table. These indicators witnessed a proper growth in 2018-19 compared with 2017-18, such that the deposits and loans per capita of personnel grew to IRR 81 billion and 39 billion in 2018-19 from IRR 62 billion and IRR 31 billion in 2017-18, respectively. Also, the branches’ efficiency indicators enjoyed a relatively suitable growth in 2018-19 proportionate to the personnel per capita.
(Amounts in IRR million) Percentage Description / Fiscal Year 2017-18 2018-19 of Growth Deposits per capita 62,119 81,340 30.9 Personnel Loans per capita 30,667 39,418 28.5 Deposits per capita 679,919 940,377 38.3 Branches Loans per capita 335,658 455,715 35.8
3.2. Operation Control Indicators 3.2.1. Ratio of Claims to Total Loans and Claims The following diagram shows the trend of the ratio of claims to the total facilities and claims over a seven- year period ending the fiscal year 2018-19, indicating that the performance was more desirable in 2018- 19 as compared with the fiscal years 2016-17 and 2017-18.
(Amounts in IRR billion) Description / Fiscal Year 2017-18 2018-19 Claims 126,326 147,320 Total Loans and Claims 612,774 770,074 Ratio of Claims to Total Loans and Claims (%) 20.6 19.1
Ratio of Claims to Total Facilities and Claims (%)
21 20.2 20.6 19.0 19.1 16.8 13.8
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
3.2.2. Reserves Adequacy Ratio The following table shows the claims reserves adequacy ratio on March 20, 2019. This ratio actually shows that the claims special reserves equaling 58.7% of the claims have no real estate or deposit collaterals. In other words, for some IRR 123 trillion of the Bank’s claims, whose collaterals are promissory notes, a special reserve for some USD 72 trillion is recorded in the accounts. Amounts in IRR billion Description / Fiscal Year 2018-19 Special Reserve for Doubtful Claims 72,087 Balance of Net Claims after Reduction of Real Estate and Deposit Collaterals 122,870 Reserves Adequacy Ratio (%) 58.7 TEJARAT BANK 49 3.2.3. Capital Adequacy Ratio Among the indicators showing the extent of risk coverage by banks is the capital adequacy ratio. In this regard, the values of the Bank’s capital adequacy ratio for seven years ending March 20, 2019, are shown in the following chart. In order to maintain the upward trend of this indicator, raising the capital adequacy ratio to 12% has been defined as one of the strategic goals of the Bank and necessary planning for its realization using various methods including capital increase sourced from cash input is on the Bank’s agenda. Capital Adequacy Ratio (%) 9/6 8/9 6/3 3/9 3/0 (5/7) (11)
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
3.2.4. Open Foreign Exchange Position The following diagram shows the Bank’s open foreign exchange position during the recent three fiscal years. According to the CBI, the exchange rate per each US dollar rose to IRR 75,000 in 2018-19 from IRR 37,690 in 2017-18, which led to identifying IRR 32,356 billion as profit from the conversion of foreign currency assets and debts, and the Bank’s open foreign exchange position grew by more than two times.
Open Foreign Exchange Position (Loss) (IRR billion) 71,940 35,133 26,234
2016-17 2017-18 2018-19
3.2.5. Liquidity Status The Bank’s core liquidity refers to the cash funds available in the Bank’s own fund or reachable via the CBI and other banks. Thanks to the plans, measures and efforts made in 2018-19, the Bank succeeded to improve the deposits mobilization and allocation process, which led to improved liquidity in the previous year. The daily liquidity fluctuation trend of the Bank is shown in the following diagram. Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 50 Diagram of the Bank’s Daily Liquidity Fluctuation Trend in 2018-19 (IRR billion)
55,523 56,582
5,226
(53,752) (33,236) (41,848) 2018/09/11 2018/11/14 2018/11/27 2018/03/21 2018/04/02 2018/04/15 2018/04/26 2018/05/09 2018/05/21 2018/06/02 2018/06/18 2018/06/30 2018/07/12 2018/07/24 2018/08/05 2018/08/16 2018/08/29 2018/09/25 2018/10/07 2018/10/18 2018/10/31 2018/12/09 2018/12/20 2019/01/01 2019/01/13 2019/01/24 2019/02/05 2019/02/19 2019/03/03 2019/03/14
4. TREND OF STOCK PRICE
The trend of Tejarat Bank’s stock price fluctuation in 2018-19 is shown in the following diagram. It shows that the shareholders’ expectation of the improvement of the Bank’s performance and realization of the capital increase last year was the main cause of the rising stock price trend in 2018-19. The annual return on Tejarat Bank’s stock price equaled 174% which brought it among the top banks in the banking industry.
Diagram of the Bank’s Stock Price Fluctuation in 2018-19 (IRR) 1,868
1,718
628 2018-11-12 2018-12-11 2019-03-11 2018-03-26 2018-04-29 2018-05-28 2018-07-01 2018-07-31 2018-09-09 2018-10-13 2019-01-12 2019-02-10 5. SUMMARY OF PERFORMANCE OF OTHER RATIOS
Restated Indicator Description 2018-19 2017-18 Facilities to deposits ratio (after applying legal deductions) (%) 85.5 88.5 Business Ratios Investments to total assets ratio (%) 7.8 3.4 Cash and liquidable assets to total assets ratio (%) 6.5 3.9 Liquidity Ratios Cash and liquidable assets to total deposits ratio (%) 8.9 4.8 Deposit per capita in terms of branch (IRR billion) 940 680 Agents’ Efficiency Deposit per capita in terms of personnel (IRR billion) 81 62 Indicators Income per capita in terms of personnel (IRR billion) 12.5 8.6 Net profit per capita in terms of personnel (IRR million) (316) (3,409) Capital adequacy ratio (%) (11.0) (5.7) Open Foreign Exchange Position (USD million) 959 932 Net deferred and doubtful claims to total facilities and claims 10.2 11.3 Risk Indicators ratio (%) Net LG and LC claims to total LG and LC liabilities (%) 0.9 1.2 Reserves adequacy ratio (special reserves of claims to total 58.7 58.6 claims ratio) (%) Equity Ratio Equity to total assets ratio (%) 8.5 (3.1) Debt ratio (total debts to total assets ratio) (%) 91 103.1 Leverage Ratios Leverage ratio (total assets to Equity) (times) 11.8 (31.8) TEJARAT BANK 51 CHAPTER FIVE FINANCIAL STATEMENTS Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 52
Independent Auditor’s Report To Annual General Meeting of the Shareholders Tejarat Bank (Public Joint Stock)
Report on the Financial Statements Introduction 1. We have audited the accompanying consolidated financial statements of the Group and standalone financials statements of Tejarat Bank (Public Joint Stock) which comprise the balance sheets as at March 20, 2019, and the statements of profit and loss, comprehensive profit and loss, changes in proprietor’s equity and cash flow statement for the fiscal year then ended, and explanatory notes 1 to 63.
Board of Directors’ Responsibility for the Financial Statements 2. The Bank’s board members are responsible for preparation and fair presentation of these financial statements in accordance with Iranian accounting standards; this includes design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility 3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Iranian auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
Basis for Qualified Opinion 4. Due from government account (note number 11 to the financial statements) includes the amount of 106,031 billion Rials overestimation and over-calculation of the rates of interests and penalties of those debts which are not acceptable by the Government (calculation of debt interest is done based on the Central Bank letter of instruction dated 19 March, 2019), over-calculation of the amount of 37,443 billion Rials which does not comply with relevant rules and regulations and at least the amount of 71,325 billion Rials has been resulted from over-calculation of principal and interest of granted facilities, bonds and differences of translation of multiple rates of exchange of foreign currencies to single-rate of exchange and we have not been provided with any evidential TEJARAT BANK 53
matter which these over-calculations are acceptable by the Government. Adjustment of accounts is a must, but determination of conclusive amount of that is not possible for us at the present situation.
5. Examination of rescheduled granted facilities and noncurrent receivables shows us that they have not been classified properly and those receivables have deficit of impairment. In calculation of impairment of special doubtful receivables during recent years, the value of collateralized assets has been calculated based on the consumers price indexes of goods and services which have been announced by the Central Bank, these indexes are not a proper basis for calculation of impairment of receivables. Determination of impairment of bank’s claims is a must, but due to inadequacy of information system of the bank and high volume of transactions and lack of comprehensive information about the value of collaterals, we are unable to determine the conclusive amount of those impairments.
6. Based on note 17-1, 18-1, 14-2, 29-2 and 30 to the consolidated financial statements, bank’s assets including land, building, goodwill and investments have been increased against the capital of the bank and revaluation surplus accounts. In compliance with Iranian Accounting Standards consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances, but procedures of measurement of assets in the parent company have not been applied in the Group companies. Adjustment of the accounts in this regard is not possible for us at the present time.
7. Based on the contents of Article 34 of Articles of Association of Bank’s Retirement and Disability Fund, deficit of Fund’s resources must be financed by member banks. Based on the actuarial calculations, reporting bank’s share of the Fund’s deficit until the end of the year ended March 20, 2019 has been calculated for the amount of 76,730 billion Rials (until the end of the year ended March 20, 2018 the amount of 41,819 billion Rials). The bank has raised objection to the actuarial calculations at the time of privatization (end of the year ended March 20, 2009) and thereafter, and in this regard, has either paid for or made a provision for, just the amount of 23,669 billion Rials in the book of accounts. Adjustment of accounts in this regard is necessary, but determination of the financial amount of bank’s share depends on the outcome of bank’s objection.
8. As described in Note Number 25 to the financial statements, for income tax of the years ended March 20, 2017 and March 20, 2018, based on the issued preliminary tax assessment notices for those years the amount of 12,914 billion Rials has been claimed in total, income tax appeal has been submitted to tax appeal commissioner by the bank. And also, with respect to the declared loss of the bank for the reporting year, no income tax provision has been calculated and recorded in the book of accounts in this respect. In addition, on the basis of paragraph (B) and (P) of Article 17 of Act of Removing Production Barriers and Competiveness and Improving the Financial System of the Country for Activities which are not related to banking same as business ownership and stock ownership of other companies and possession of surplus real estates that are not essential for the operation of the bank, Iranian National Tax Administration has considered the bank taxable in this regard, Therefore, preliminary unsold surplus assets tax assessment notices for the years ended 20 March, 2017 and 20 March, 2018 have been issued by Tax Assessor respectively for the amounts of 9,215 billion Rials and 16,269 billion Rials which the bank has taken an appeal to the Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 54
Tax Appeal Commissioner for those assessments and also no tax provision has been provided in this regard in the book of accounts. Adjustment of accounts in this regard is a must, but conclusive amount of that depends on the result of bank’s appeal to the tax authorities.
9. With reference to the Directive Number 98/62847 dated 12 June 2019 of the Central Bank, monetary foreign currency assets and liabilities of the bank have been translated based on the exchange rates, equal to 85,000 Rials for each Euro and 75,000 Rials for each US dollar and for other currencies based on the exchange rate of Euro with those currencies at the end of the year and for this translation the amount of 32,351 billion Rials has been recorded to the account of net gain of foreign currency transactions (note number 44 to the financial statements) and the amount of 3,945 billion Rials to the account of foreign currency translation difference (note number 34 to the financial statements). In accordance with Iranian Accounting Standards when there are multiple rates of exchange for one kind of foreign currency, the exchange rate used to translate foreign currency should be proportional to future cash flows consumed for settlement of translation or related account balance would be settled. Therefore, the adjustment of accounts is a must, but determination of effect of the adjustments on the financial statements is not possible for us at the present situation.
10. We have not yet received the confirmation letters requested for sight foreign currency deposit accounts with foreign banks (restricted) and the account of facilities received from Foreign Currency Reserve Account (Explanatory Notes 10-3 and 26-3 to the financial statements) at the amounts of 5,104 billion Rials and 10.466 billion Rials respectively and we were not able to substantiate these balances through applying other auditing procedures. Further, the unfavorable discrepancy of the confirmation letters received with respect to other accounts receivable is 6,378 billion Rials. Since the nature of discrepancies is not known, we were not able to quantify possible impacts on the financial statements, had such discrepancies and other possible discrepancies been removed.
Qualified Opinion 11. In our opinion, except for the effects of the matters described in Paragraphs 4 to 9, and also except for the possible impact mentioned in Paragraph 10, the financial statements present fairly, in all material respects, the financial position of the Group and Tejarat Bank (Public Joint-Stock) as at March 20, 2019 and of their financial performance and their cash flows for the year then ended, in accordance with Iranian Accounting Standards.
Emphasis of Matters 12. As described in notes number 16-4-1 and 14-2-1-2 to the financial statements, shares of the National Investment Company of Iran have been transferred to the South Mines Development Company by the bank because of non-fulfillment of obligations by the buyer, the bank has filed a petition to the arbitration committee of Tehran Stock Exchange. Hearing session to the bank’s petition has been held at 9 October, 2018, but the final verdict has not yet been issued by that committee. Also, arbitration committee of Tehran Stock Exchange has issued a binding final verdict for termination of contract and conviction of buyer and also, surrender of Fars Trade Power Plant Generating Company’s shares to the bank, the process of implementation of the verdict by the enforcement offices and departments of the Iranian Documentation and Real Estate Agency is being followed. Our opinion is not qualified in respect of this matter. TEJARAT BANK 55
13. As reflected in note number 10-2-3 to the financial statements, based on the Central Bank’s directives related to the fulfillment of previous years foreign currency obligation, the reporting bank has recorded its foreign currency obligation in bank’s portal to the website of Central Bank by using semi subsidized rate of exchange (Called Marja’a rate of exchange) and has claimed the amount of 16,433 billion Rials in this regard from Central Bank (previous year the amount of 14,051 billion Rials), the result of Central Bank’s examinations in this regard has not yet been announced to the bank, and a special audit is supposed to be conducted for these accounts. Also, as described in note number 10-2-2 to the financial statements, Central Bank has withdrawn the amount of 2,250 billion Rials from the bank’s current account with that bank as foreign currency translation differences at the end of the year ended 20 March, 2012 with reference to the approval of Board of Five Members of Work-Group for Organizing Foreign Currency Issues. The bank has raised objection to this withdrawal and followed that issue, but up to the date of this report, this disagreement has not been settled and final result of this disagreement depends on the settlement of this issue with Central Bank’s authorities. Our opinion is not qualified in respect of this matter.
Date: July 10, 2019 (19 Tir, 1398 Iranian Calendar)
Audit Organization Majid Darabi Vahid Ghassem Tohidi Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 56 0 0 655,694 492,019 (781,915) 2,111,177 2018 8,607,647 4,724,044 3,147,269 50,261,873 40,541,880 45,700,000 17,713,243 221,411,182 March 20, 150,248,266 212,039,647 883,919,991 507,174,879 135,451,901 131,450,840 (Restated) (42,256,551) (40,145,374) (103,653,596) 1,350,949,496 1,391,094,870 Rls. Million 737,240 764,706 (339,146) 2019 9,320,524 4,724,044 9,954,285 2,045,483 30,439,460 77,400,485 19,482,303 114,152,313 116,197,796 129,724,118 112,574,243 March 20, 223,926,127 238,414,780 300,327,855 752,645,777 231,147,090 387,940,195 (54,530,591) (109,342,390) 1,897,158,217 1,780,960,421 1,028,314,644 Rls. Million 32 33 34 35 30 31 29 28 25 26 27 23 24 22 29-2 54-3 54-4 54-1 54-2 Note Liabilities & Equity Legal reserve Other reserves Foreign currency translation differences Retained loss Minority interest equity Total Managed funds and corresponding Surplus from revaluation of assets shares owned by subsidiaries Parent company’s Proprietor’s equity attributable to parent Total shareholders company’s Adjustment of parent company’s equity out of Adjustment of parent company’s revaluation liabilities & equity Total other commitments Bank’s Bank’s commitments for documentary credits Bank’s commitments for letters of guarantee Bank’s issued Capital Total liabilities Total Equity: Equity of holders investment deposits Total liabilities before equity of holders Total investment deposits Provisions and other liabilities termination benefits and post- Provision for staff retirement obligations Provision for income tax Customers’ deposits Customers’ Dividend payable Payables to banks and credit institutions Liabilities 922,443 795,904 At March 20, 2019 2018 1,017,523 1,095,691 40,541,880 82,299,028 50,261,873 87,522,132 74,162,252 33,766,240 26,643,041 53,365,168 112,902,249 March 20, 150,248,266 212,039,647 539,669,986 336,787,839 (Restated) 1,350,949,496 Rls. Million Consolidated Balance Sheet Tejarat Bank (Public Joint Stock) Tejarat 951,629 267,955 2019 9,746,906 6,276,261 77,400,485 90,108,908 94,286,920 51,842,591 113,693,107 129,724,118 March 20, 238,414,780 300,327,855 144,728,599 172,510,136 682,212,866 402,923,136 127,609,203 1,897,158,217 Rls. Million 9 11 21 18 19 20 16 17 13 14 15 10 12 54-4 54-1 54-2 54-3 Note Assets Total Assets Total Contra- managed funds and corresponding Other assets commitments for documentary Customers’ credits commitments for letters of guarantee Customers’ issued other commitments Customers’ Intangible assets Statutory deposit Goodwill Other accounts receivable fixed assets Tangible Facilities granted and receivables from non- governmental sector Investment in shares and other securities and associated Receivables from affiliated companies Receivables from banks and credit institutions Due from Government Facilities granted and due from governmental sector Assets Cash The accompanying notes form an integral part of the financial statements TEJARAT BANK 57 Tejarat Bank (Public Joint Stock) Consolidated Profit and Loss Statement For the Fiscal Year Ended March 20, 2019
(Restated) Year Ended Description Note Year Ended March 20, March 20, 2019 2018 Rls. Million Rls. Million Rls. Million Income from facilities granted and deposits and debt bonds 36 164,339,577 123,763,326 Expense of interest on deposits 41 (145,515,812) (152,900,966) Net income from facilities and deposits 18,823,765 (29,137,640)
Income from commission 42 11,210,518 7,753,437 Expense of commission 43 (3,091,895) (3,309,556) Net income from commission 8,118,623 4,443,881
Net profit from investments 37 3,467,466 5,691,352 Net profit from foreign currency transactions and trading 44 35,658,204 8,517,423 Other operating income and expenses 45 5,133,173 6,740,294 Total operating income 71,201,231 (3,744,690)
Net other income and expenses 46 4,468,553 3,113,886 Administrative and general expenses 47 (40,919,865) (34,240,140) Expense of doubtful debts 48 (17,710,803) (14,931,098) Financial expenses 49 (16,857,486) (6,454,425) Expense of depreciation/amortization 50 (2,006,511) (2,256,437) Total expenses (73,026,112) (54,768,214) Group’s share of associated companies’ profit 14-3-2 423,460 490,650 Loss before income tax (1,401,421) (58,022,254) Income tax 25 (689,340) (597,386) Net loss (2,090,761) (58,619,640) Loss attributable to: Parent company’s shareholders (2,509,693) (59,151,445) Minority interest from profit 418,932 531,805 Loss per share (IR Rials) Base Loss per Share (IR Rials) 56 (11) (265)
The accompanying notes form an integral part of the financial statements Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 58 Tejarat Bank (Public Joint Stock) Consolidated Comprehensive Profit and Loss Statement For the Fiscal Year Ended March 20, 2019
(Restated) Year ended Year ended Description Note March 20, March 20, 2019 2018 Rls. Million Rls. Million Net loss (2,090,761) (58,619,640) Surplus from revaluation of assets 30 208,665,587 0 Transfer of surplus from revaluation of assets to capital account 30 (178,226,127) 0 Difference from uniform foreign exchange translation rate 34 6,807,016 48,583 Comprehensive profit (loss) of the fiscal period 35,155,715 (58,571,057) Prior period adjustments 51 (29,710,356) (2,908,556) Comprehensive profit (loss) recognized since the previous 5,445,359 (61,479,613) reporting period Minority interest from comprehensive profit of the fiscal period 402,562 527,855
The accompanying notes form an integral part of the financial statements TEJARAT BANK 59 0 442,769 (36,256) (432,000) Total Total 6,807,016 5,445,359 Equity 30,439,460 37,246,476 (2,090,761) (2,466,224) 116,197,796 178,226,127 121,203,825 (10,451,388) (29,710,356) (54,530,591) Rls. Million Shareholders’ 0 0 0 0 0 0 0 0 418,932 402,562 (16,370) (36,256) (468,256) (432,000) 2,111,177 2,045,483 Interest Minority Rls. Million 0 0 0 442,769 6,807,016 5,042,797 30,439,460 37,246,476 (2,509,693) (2,466,224) to parent company 114,152,313 178,226,127 121,672,081 (12,562,565) (29,693,986) (54,530,591) Rls. Million attributable Total equity Total 0 0 0 0 0 0 0 0 Loss (712,877) (2,509,693) (2,466,224) (3,179,101) Retained (73,959,610) (29,693,986) (32,203,679) Rls. Million (109,342,390) 0 0 0 0 0 0 0 0 0 0 0 9,954,285 3,147,269 6,807,016 6,807,016 6,807,016 Currency Operation of Foreign of Foreign Difference Rls. Million Translation Translation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Other 4,724,044 4,724,044 Reserves Rls. Million March 20, 2019 0 0 0 0 0 0 0 0 0 0 0 0 712,877 712,877 Legal 9,320,524 8,607,647 Reserve Rls. Million 0 0 0 0 0 0 0 0 0 0 0 0 442,769 442,769 (339,146) (781,915) Parent Shares Owned by Company’s Company’s Rls. Million Subsidiaries Tejarat Bank (Public Joint Stock) Tejarat 0 0 0 0 0 0 0 0 0 0 0 0 For the Fiscal Year Ended March 20, 2019 Year For the Fiscal from Surplus 30,439,460 30,439,460 30,439,460 30,439,460 of Assets Rls. Million Revaluation 0 0 0 0 0 0 0 0 0 0 0 0 0 Consolidated Statement of Changes in Shareholders’ Equity Consolidated Statement of Changes in Shareholders’ of Parent (54,530,591) (54,530,591) Rls. Million (54,530,591) Company’s Company’s Adjustment Revaluation Equity out of out Equity 0 0 0 0 0 0 0 0 0 0 0 0 Capital 45,700,000 Rls. Million 223,926,127 178,226,127 178,226,127 51 30 34 32 31 24 Note Description Balance on March 20, 2019 Balance on March 21, 2018 Net loss Prior period adjustments Other Comprehensive Profits (Losses) after Tax Surplus from revaluation of assets Total other comprehensive Total profits Foreign currency translation differences comprehensive profit Total Capital increase Capital increase registered Adjustment of parent equity out of company’s revaluation Equity of minor shareholders created during the period Distributed and allocated Legal reserve Other changes Parent company’s shares Parent company’s owned by subsidiaries Approved dividend Total Total Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 60 0 0 48,583 48,583 769,362 454,967 (494,971) (384,784) 1,194,150 Total Total 20,564,877 Equity (2,908,556) (40,145,374) (61,479,613) (58,619,640) Rls. Million Shareholders’ 0 0 0 0 0 0 70,183 (3,950) 454,967 527,855 531,805 (384,784) 2,111,177 1,513,139 Interest Minority Rls. Million 0 0 0 0 48,583 48,583 699,179 (494,971) 1,194,150 19,051,738 (2,904,606) (42,256,551) (62,007,468) (59,151,445) to parent company Rls. Million attributable Total equity Total 0 0 0 0 0 0 8,345 1,194,150 (1,185,805) (2,904,606) (62,056,051) (41,605,890) (59,151,445) Rls. Million (103,653,596) Retained Loss 0 0 0 0 0 0 0 0 0 48,583 48,583 48,583 3,147,269 3,098,686 Currency Operation of Foreign of Foreign Difference Rls. Million Translation Translation March 20, 2018 0 0 0 0 0 0 0 0 0 0 0 0 4,724,044 4,724,044 Other Reserves Rls. Million 0 0 0 0 0 0 0 0 0 0 8,607,647 1,185,805 1,185,805 7,421,842 Rls. Million Tejarat Bank (Public Joint Stock) Tejarat Legal Reserve 0 0 0 0 0 0 0 0 0 0 For the Fiscal Year Ended March 20, 2019 Year For the Fiscal (781,915) (494,971) (494,971) (286,944) Parent Shares Owned by Owned Consolidated Statement of Changes in Shareholders’ Equity Consolidated Statement of Changes in Shareholders’ Rls. Million Company’s Company’s Subsidiaries 0 0 0 0 0 0 0 0 0 0 0 0 45,700,000 45,700,000 Capital Rls. Million 31 32 24 51 30 34 Note Description Balance on March 20, 2018 Equity of minor shareholders created during the period Parent company’s shares Parent company’s owned by subsidiaries Distributed and allocated Legal reserve Other changes Approved dividend Total Balance on March 21, 2017 Net loss Prior period adjustments Other Comprehensive Profits (Losses) after Tax Surplus from revaluation of assets Foreign currency translation differences other comprehensive Total profits comprehensive profit Total Continued TEJARAT BANK 61 Tejarat Bank (Public Joint Stock) Consolidated Cash Flow Statement For the Fiscal Year Ended March 20, 2019
(Restated) Year Ended Description Note Year Ended March 20, March 20, 2019 2018 Rls. Million Rls. Million Operating activities Cash received for: Interest and penalty on facilities granted 162,914,610 121,742,575 Commission 11,210,518 7,753,437 Interest from deposits 1,424,967 2,020,751 Profit from investments 3,467,466 5,691,352 Other operating income 19,522,300 5,653,058 Cash paid for: Interest on deposits (145,515,812) (152,900,966) Commission (3,091,895) (3,309,556) Finance cost (16,857,486) (6,454,425) Other operating expenses (35,838,530) (34,989,704) Income tax (440,005) (373,681) Cash outflow from operating activities before (3,203,867) (55,167,159) changes in operating assets and liabilities Cash flows from changes in operating assets & liabilities: Net increase (decrease) in liabilities: Payables to banks and other credit institutions 5,402,264 61,735,977 Customers’ deposits 166,529,014 42,790,397 Operating portion of provisions and other liabilities 102,171,277 747,379 Equity of holders of investment deposits 144,394,652 114,143,416 Net (Increase) Decrease in Assets: Receivables from banks and other credit institutions (25,199,550) (3,109,276) Due from Government (97,023,142) (55,185,512) Principal facilities granted and receivables from governmental persons 527,949 144,742 Principal facilities granted and receivables from nongovernmental persons (151,486,362) (63,943,362) Investment in shares and other securities 242,115 2,282,502 Receivables from affiliated and associated companies (5,353,818) (3,023,587) Other accounts receivable (22,878,238) 10,335,371 Statutory deposit (31,826,350) (9,678,305) Operating portion of other assets (32,742,173) (29,710,209) Cash flows from changes in operating assets and 52,757,638 67,529,533 liabilities Net cash inflow from operating activities: 52 49,553,771 12,362,374 Investing Activities Cash paid for acquisition of tangible fixed assets (4,272,757) (9,710,811) Proceeds from sale of tangible fixed assets 835,418 157,525 Cash paid for acquisition of intangible assets (306,761) (160,590) Proceeds from sale of intangible assets 11,195 9,745 Net cash outflow from investing activities 3,732,905 (9,704,131) Net cash inflow before financing activities 45,820,866 2,658,243 Financing Activities Treasury stock transactions 442,769 (494,971) Dividend paid (159,312) 499,005 Net cash inflow (outflow) from financing activities 283,457 (993,976) Net cash increase 46,104,323 1,664,267 Cash balance at beginning of year 45,443,217 36,930,008 Effects of foreign currency rate fluctuations 25,086,655 6,848,942 Cash balance at end of year 52-1 116,634,195 45,443,217 Noncash transactions 53 254,930,262 1,942,486
The accompanying notes form an integral part of the financial statements
Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 62 0 0 365,581 2018 7,089,102 4,724,044 4,204,239 17,522,011 50,261,873 40,541,880 45,700,000 March 20, 129,932,135 223,007,084 129,489,509 150,248,266 212,105,693 500,316,320 887,703,550 (Restated) (42,274,245) Rls. Million (103,991,630) 1,345,745,625 1,388,019,870 0 363,457 2019 7,089,102 4,724,044 8,149,600 19,243,466 30,439,460 77,400,485 March 20, 112,293,126 129,724,118 389,205,530 225,037,147 238,414,780 300,510,102 164,815,393 746,142,726 223,926,127 Rls. Million (109,512,940) 1,942,874,099 1,031,915,980 1,778,058,706 22 23 24 25 26 27 30 32 33 34 28 29 54-1 54-2 54-3 54-4 Note Liabilities & Equity Liabilities Payables to banks and credit institutions deposits Customers’ Dividend payable Provision for income tax Provisions and other liabilities Provision for staff termination benefits and post- Provision for staff retirement obligations Total liabilities & Equity Total commitments for documentary credits Bank’s commitments for letters of guarantee Bank’s issued other commitments Bank’s Legal reserve equity Total Surplus from revaluation of assets Other reserves Foreign currency translation differences Retained loss Managed funds and corresponding Total liabilities before equity of holders Total investment deposits Equity of holders investment deposits liabilities Total Equity Capital Balance Sheet 795,904 983,071 At March 20, 2019 2018 52,825,707 25,761,262 46,418,510 50,261,873 80,695,177 40,541,880 21,342,070 60,164,969 60,406,040 March 20, 112,902,249 336,787,839 546,662,827 150,248,266 212,105,693 (Restated) Rls. Million 1,345,745,625 Tejarat Bank (Public Joint Stock) Tejarat 267,955 2019 9,641,631 50,045,434 77,400,485 19,652,057 82,654,488 111,275,276 March 20, 129,724,118 126,140,390 402,923,136 688,013,358 150,987,922 238,414,780 300,510,102 156,543,853 144,728,599 Rls. Million 1,942,874,099 9 11 10 12 13 14 15 16 17 18 19 21 54-1 54-2 54-3 54-4 Note Assets Assets Cash Receivables from banks and credit institutions Due from Government Facilities granted and due from governmental sector Facilities granted and receivables from non- governmental sector Investment in shares and other securities Total Assets Total commitments for documentary Customers’ credits commitments for letters of guarantee Customers’ issued other commitments Customers’ Contra- managed funds and corresponding Receivables from affiliated and associated Receivables from affiliated companies Other accounts receivable fixed assets Tangible Intangible assets Statutory deposit Other assets The accompanying notes form an integral part of the financial statements TEJARAT BANK 63 Tejarat Bank (Public Joint Stock) Profit and Loss Statement For the Fiscal Year Ended March 20, 2019
(Restated) Year Ended Description Note Year Ended March 20, 2019 March 20, 2018 Rls. Million Rls. Million Income from facilities granted and deposits and 36 165,239,579 124,473,171 debt bonds Expense of interest on deposits 41 (146,412,554) (153,671,267) Net income from facilities and deposits 18,827,025 (29,198,096)
Income from commission 42 11,206,293 7,744,877 Expense of commission 43 (3,106,542) (3,313,607) Net income from commission 8,099,751 4,431,270
Net profit from investments 37 2,343,857 10,214,911 Net profit from foreign currency transactions and 44 35,662,252 8,512,443 trading Other operating income and expenses 45 188,727 35,512 Total operating income 65,121,612 (6,003,960)
Net other income and expenses 46 4,210,073 2,480,990 Administrative and general expenses 47 (39,603,358) (34,107,891) Expense of doubtful debts 48 (17,614,332) (15,197,371) Financial expenses 49 (16,738,323) (6,348,149) Expense of depreciation/amortization 50 (896,982) (1,682,376) Loss before income tax (5,521,310) (60,858,757) Income tax 25 0 0 Net loss (5,521,310) (60,858,757) Loss per share (IR Rials) Base Loss per Share (IR Rials) 56 (25) (272) Diluted Earnings Per Share (IR Rials) - -
The accompanying notes form an integral part of the financial statements Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 64 Tejarat Bank (Public Joint Stock) Comprehensive Profit and Loss Statement For the Fiscal Year Ended March 20, 2019
(Restated) Year ended Year ended Description Note March 20, March 20, 2019 2018 Rls. Million Rls. Million Net loss (5,521,310) (60,858,757) Surplus from revaluation of assets 30 208,665,587 0 Transfer of surplus from revaluation of assets to capital account 30 (178,226,127) 0 Difference from uniform foreign exchange translation rate 34 3,945,361 1,105,553 Comprehensive profit (loss) of the fiscal period 28,863,511 (59,753,204) Prior period adjustments 51 (24,041,295) (5,792,993) Comprehensive profit (loss) recognized since the previous 4,822,216 (65,546,197) reporting period
The accompanying notes form an integral part of the financial statements TEJARAT BANK 65 0 0 0 Total Total 3,945,361 4,822,216 Equity 30,439,460 34,384,821 (5,521,310) 178,226,127 178,226,127 164,815,393 (18,232,950) (24,041,295) Rls. Million Shareholders’ 0 0 0 0 0 0 0 0 (Loss) (5,521,310) Retained (79,950,335) (24,041,295) (29,562,605) Rls. Million (109,512,940) 0 0 0 0 0 0 0 0 4,204,239 3,945,361 3,945,361 3,945,361 8,149,600 Currency Operation of Foreign Difference Rls. Million Translation Translation 0 0 0 0 0 0 0 0 0 0 0 4,724,044 4,724,044 Other Reserves Rls. Million March 20, 2019 0 0 0 0 0 0 0 0 0 0 0 7,089,102 7,089,102 Legal Reserve Rls. Million 0 0 0 0 0 0 0 0 0 30,439,460 30,439,460 30,439,460 30,439,460 of Assets Rls. Million Revaluation Surplus from 0 0 0 0 0 0 0 0 0 Capital 45,700,000 Tejarat Bank (Public Joint Stock) Tejarat 178,226,127 178,226,127 223,926,127 Rls. Million For the Fiscal Year Ended March 20, 2019 Year For the Fiscal Statement of Changes in Shareholders’ Equity Statement of Changes in Shareholders’ 51 30 34 30 32 33 34 Note Description Net loss Prior period adjustments Balance on March 21, 2018 Other Comprehensive Profits (Losses) after Tax Surplus from revaluation of assets Foreign currency translation differences Foreign currency translation differences Total other comprehensive profits Total comprehensive profit Total Capital Increase Capital increase registered Distributed and allocated Legal reserve Other reserves Approved dividend Total Total Balance on March 20, 2019 Annual Report To Be Submitted to the Annual General Meeting For the Fiscal Year Ending March 20th, 2019 66 0 0 0 0 Total Total 1,105,553 1,105,553 Equity 23,271,952 (5,792,993) (60,858,757) (65,546,197) (42,274,245) Rls. Million Shareholders’ 0 0 0 0 0 0 (Loss) (5,792,993) Retained (37,339,880) (60,858,757) (66,651,750) Rls. Million (103,991,630) 0 0 0 0 0 0 3,098,686 1,105,553 1,105,553 1,105,553 4,204,239 Currency Operation of Foreign Difference Rls. Million Translation Translation 0 0 0 0 0 0 0 0 0 4,724,044 4,724,044 Other Reserves Rls. Million Year Ended March 20, 2018 Year 0 0 0 0 0 0 0 0 0 7,089,102 7,089,102 Legal Reserve Rls. Million 0 0 0 0 0 0 0 0 0 Capital 45,700,000 45,700,000 Rls. Million 51 32 34 33 24 Note Tejarat Bank (Public Joint Stock) Tejarat For the Fiscal Year Ended March 20, 2019 Year For the Fiscal Statement of Changes in Shareholders’ Equity Statement of Changes in Shareholders’ Description Net loss Balance on March 21, 2017 Prior period adjustments Distributed and allocated Legal reserve Other Comprehensive Profits (Losses) after Tax Foreign currency translation differences Total other comprehensive profits Total comprehensive profit Total Other reserves Approved dividend Total Total Balance on March 20, 2018 Continued
TEJARAT BANK 67 Tejarat Bank (Public Joint Stock) Cash Flow Statement For the Fiscal Year Ended March 20, 2019
(Restated) Year Ended Description Note Year Ended March 20, 2019 March 20, 2018 Rls. Million Rls. Million Operating activities Cash received for: Interest and penalty on facilities granted 164,026,674 122,889,479 Commission 11,206,292 7,744,877 Interest from deposits 1,212,905 1,583,692 Profit from investments 2,343,857 10,214,911 Other operating income 18,087,218 4,548,080 Cash paid for: Interest on deposits (146,412,554) (153,671,267) Commission (3,106,542) (3,313,607) Finance cost (16,738,323) (6,348,149) Other operating expenses (39,151,723) (41,834,642) Cash outflow from operating activities before (8,532,196) (58,186,626) changes in operating assets and liabilities Cash flows from changes in operating assets & liabilities: Net increase (decrease) in liabilities: Payables to banks and other credit institutions 5,402,264 64,396,057 Customers’ deposits 166,198,446 35,740,746 Operating portion of provisions and other liabilities 95,547,638 1,249,198 Equity of holders of investment deposits 144,212,430 114,662,227 Net (Increase) Decrease in Assets: Receivables from banks and other credit institutions (24,284,172) (2,229,020) Principal due from Government (97,023,142) (55,185,511) Principal facilities granted and receivables from governmental persons 527,949 144,742 Principal facilities granted and receivables from nongovernmental persons (156,727,361) (62,576,078) Investment in shares and other securities 682,612 (4,145,676) Receivables from affiliated and associated companies 1,690,013 (7,100,787) Other accounts receivable (20,660,312) 6,258,643 Statutory deposit (31,826,350) (9,678,305) Operating portion of other assets (29,023,167) (18,095,040) Net other income and expenses 0 43,885 Cash flows from changes in operating assets 54,716,848 63,485,081 and liabilities : Net cash inflow from operating activities 52 46,184,652 5,298,455 Investing Activities Cash paid for acquisition of tangible fixed assets (1,943,939) (2,190,181) Proceeds from sale of tangible fixed assets 794,829 157,525 Cash paid for acquisition of intangible assets (285,820) (106,873) Proceeds from sale of intangible assets 11,192 9,744 Net cash outflow from investing activities (1,423,738) (2,129,785) Net cash inflow before financing activities 44,760,914 3,168,670 Financing Activities Dividend paid (2,124) (188,454) Net cash outflow from financing activities (2,124) (188,454) Net cash increase 44,758,790 2,980,216 Cash balance at beginning of year 46,422,460 36,618,220 Effects of changes in foreign currency translation rates 24,265,249 6,824,024 Cash balance at end of year 52-1 115,446,499 46,422,460 Noncash transactions 53 254,930,262 1,942,486
The accompanying notes form an integral part of the financial statements